Markets await Friday’s US labour report, sentiment pushes Dollar higher

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31 August 2016

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

Despite an overwhelming set of economic data, trading on Tuesday remained mild.

P
ositive sentiment towards a US interest rate hike keeps pushing the Dollar up, especially against the Euro and some emerging market currencies.

Today we’ll see communications from three Fed officials – FOMC Members Kashgari, Rosengren and the Fed President of Chicago, Evans. They may build on the recent hawkish tones from other FOMC members and Yellen, offering further support for the Dollar.

In Switzerland, the employment level in the second quarter met expectations exactly, but the KOF Index, which predicts the direction of the economy over the next six months was a disappointment, scoring the worst since the end of 2015.

Major currencies in detail:

GBP

Sterling ended the London session 0.1% lower against the US Dollar on Tuesday, following positive sentiment towards US rate hikes this year.

Mortgage approvals, net lending to individuals and the GfK Consumer Confidence Index were all a bit disappointing but, in light of the Brexit, these numbers only reflect a small slowdown in the UK housing market. As expected, the market reaction to the data was rather limited.

The only important UK economic figure to be published today is the Nationwide House Price Index, which reflects the average change of residential real estate prices. The number is expected to be a bit lower than the previous figure of 5.2%.

EUR

Still reacting to Friday’s communication from Yellen, the Euro declined 0.2% against the US Dollar yesterday.

Preliminary CPI Indices for Germany and Spain didn’t rock the boat yesterday. Inflation in Europe’s biggest economy refuses to show any positive signs and Spanish numbers seem to be just as stubborn as the German ones. Eurozone inflation continues to be an issue for the ECB.

The results of a group of surveys examining sentiment, expectations and confidence across businesses and consumers in the Eurozone was released yesterday. Services and industrial sentiment for August was a bit worse than expected but, due to their minor importance, the common currency didn’t react extensively to the numbers.

The most important data from the European Union today is the unemployment rate and the preliminary CPI indices. We also expect to see retail sales numbers from Germany.

USD

The US Dollar market is holding onto Friday’s interest rate hike optimism. The Dollar continued from its Friday rally, finishing the day 0.3% higher versus its major peers.

The S&P/Case-Shiller House Price Index recorded slightly lower data on the US real estate market yesterday, although this didn’t hold back the American currency.

The most important indicator, the Conference Board’s Consumer Confidence for August, noted a significant increase to 101.1 from last month’s 96.7. This positive sign supported the Dollar, which continued to increase for the rest of the trading day.

The most important piece of US data today is the ADP Nonfarm Employment Change, which might be treated as an indicator for Friday’s labour report, though not the non-farm payrolls figure. Friday’s Chicago PMI and pending home sales for August are also worth observing, although are not expected to rock the boat.

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