The July employment report provided much-needed relief to the beleaguered greenback on Friday, while the pound continued to lose ground on fears the Bank of England would keep rates near record lows for longer.
The main highlight of the day was the July jobs numbers out of the United States. The market is keeping a close eye on US economic numbers as they will likely determine whether an additional Fed rate hike will take place by the end of the year. The report pointed to a healthy and growing labor market, as 209 thousand new jobs were created last month against an upwardly revised 231 thousand payrolls in June. The expectation was for 183 thousand. Both average hourly earnings (+0.3% m/m) and the unemployment rate (4.3%) were in line with expectations and also pointed to good prospects for US workers. The drop in the unemployment rate to 4.3% came at the same time as the participation rate ticked up to 62.9% from 62.8%, which was again a welcome development.
Euro/dollar retraced its gains to drop below the 1.18 level to 1.1793 as a result of the strong report. Dollar/yen also rallied to just shy of 111. 10-year Treasury yields climbed to 2.28% after the report from around 2.22% prior to the release of the numbers. Two-year yields, which are sensitive to Fed rate expectations, rose by 2.5 basis points to 1.367%.
Rising treasury yields gave a boost to the dollar, which was also strong against the commodity dollars. The Australian dollar dropped below the 79 cent mark to 0.7891 while dollar/loonie jumped to 1.2663 from 1.2577. Canada released its own decent employment numbers today, which showed its unemployment rate falling to 6.3%. On the other hand, Canada’s trade deficit worsened in June as it reached 3.6 billion Canadian dollars against a deficit of 1.36 billion the previous month.
The pound continued to slide against its major forex counterparts, following the dovish interpretation the market gave to the Bank of England meeting and economic forecasts released the previous day. Euro/pound seemed to solidify its position above the psychologically important 90 pence mark by rising to 0.9051; the highest since October 2016. While pound/dollar had climbed to 1.3266 only yesterday, following the US employment numbers, it fell to as low as 1.3056; a drop in excess of 2 cents in little over 24 hours. The market seems to think that the BoE is even less likely to raise rates in the future, despite Governor Carney’s warning that the chances of a rate hike were higher than those the market was discounting.
In other economic data, earlier today German factory orders for June climbed by 1% month-on-month against expectations of a 0.5% rise. During the Asian session Australian June retail sales rose by 0.3% against analyst forecasts of a 0.2% increase, while the RBA expressed its worries over household debt levels and a rising currency in its Statement of Monetary Policy.
In commodities, gold dropped by more than a percent to $1254 an ounce as the greenback strengthened, while WTI oil languished at just below $49 a barrel. Oil traders will be waiting for the outcome of the OPEC meeting on compliance measurement next week.