US Dollar falls, today international businesses focus on nonfarm payroll figures
04/Μαρ/2016 • Currency Updates•
The US Dollar retreated against both the Euro and the Pound on Thursday after weak service sector employment data fuelled concerns over the strength of this afternoon’s crucial US labour report.
Employment in the US service sector contracted in February for the first time in two years, dragging with it overall growth in the non-manufacturing sector, which decelerated for the fourth month in a row to its lowest level since March 2014.
International businesses today will be solely focused on this afternoon’s report, which includes the important nonfarm payrolls figure, generally considered the most significant and potentially volatile data release in the economic calendar. Financial managers have begun hedging their exposure to the US Dollar ahead of this afternoon’s announcement.
In the Eurozone, rare positive economic news, including solid retail sales figures, kept the single currency well supported throughout the London trading session.
Sterling also rallied to a two-week high against the US Dollar despite further concerns over a slowdown in the UK economy and increased speculation that an exit from the EU in the summer could send the Pound sharply lower. The overwhelming majority of analysts in the latest Reuters poll suggested that Britain’s economy would be worse off following a Brexit.
Meanwhile, the big gainer for the day was the Brazilian Real. It strengthened more than any other emerging market currency yesterday. This rally followed the news that President Dilma Rousseff, blamed heavily for Brazil’s deepest recession on record, could be implicated in a sweeping corruption scandal that may bolster the case for her impeachment.
Major currencies in detail:
Sterling appreciated for the fourth day against the US Dollar, up 0.5% despite further signs of a slowdown in the UK economy.
The latest services PMI from Markit plunged to a three-year low 52.7 in February, well below the 55.6 recorded at the beginning of the year. A slower expansion in the volume of incoming new business was to blame, with uncertainty surrounding the EU referendum unsettling UK businesses.
Thursday’s figure comes off the back of poor data earlier in the week that showed a slowdown in the manufacturing and construction sectors which, combined with yesterday’s news, suggests that the UK economy is on course to grow by a meagre 0.3% in the first quarter.
No economic indicator data out this morning points to a quiet end to the week in the UK economy, with Sterling volatility likely dependant on events elsewhere.
A weak US Dollar sent the Euro 0.8% higher against the Greenback on Thursday, with the single currency touching its highest level in a week.
Retail sales figures provided a pleasant surprise in the Euro-area on Thursday. Sales increased by 2% on a year previous, much higher than expected following a modest 0.4% increase on the month. The modestly positive data should help allay fears of an outright stagnation in the Eurozone economy ahead of next week’s European Central Bank monetary policy meeting.
Encouragingly, service sector growth also exceeded expectations, according to the latest PMI from Markit. The index for February rose by 0.3 points to 53.3 following strong expansion in Germany and Italy.
With no economic data or announcements of note out of the Eurozone economy today, all attention will be on the US.
The US Dollar fell by 0.6% against its major peers on Thursday after a series of underwhelming economic data.
Growth in the US service sector was particularly disappointing. ISM’s non-manufacturing PMI declined in February to 53.4, held back by a contraction in employment, while a similar measure from Markit fell below the threshold that represents growth, declining to 49.7.
Dallas Federal Reserve President Robert Kaplan also sounded relatively dovish yesterday. Speaking in Austin, Texas, Kaplan suggested that the Fed should be patient when raising interest rates. He claimed a decrease in oil prices and a rise in the US Dollar were acting like a break on the US economic recovery.
All attention in the US today will be on this afternoon’s labour report at 13:30 UK time. Unemployment is expected to remain unchanged at 4.9% with the volatile nonfarm payrolls figure forecast to increase to around 190,000. Any sizable positive or negative surprises from this figure will undoubtedly cause volatility in the US Dollar today.
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