USD: Data boosts dollar
The dollar was mixed overnight, holding firm in a 1.5567.1-5593 range against the EUR but a touch lower against the JPY in a range of 107.91-108.17. Strong data and a Fed announcement to boost its liquidity measures sparked further gains in risk appetite, shrugging off a rebound in oil after data showed a surprise fall in crude inventories. The ADP employment report showed a surprising 9k gain in private sector jobs in July, providing further evidence that the pace of slowing in the US economy is starting to ease. Nevertheless the number is not consistent with the drop in employment expectations contained in this week’s consumer confidence report, and the ADP report has tended to
overstate payrolls in the last few months. We continue to see a decline of 75k in Friday’s payrolls but the market is willing to express greater confidence in the US economy up ahead. GDP growth for Q2 will be released today and we are looking for a 1%y/y headline rate (cons. 2.3%). The personal consumption report contained in the GDP figures is also likely to show a gain to 1.7%y/y vs. 1.1% previously. The Fed’s 325bp worth of rate cuts since the credit crisis began have been a source of inflationary concern, not helped by many central banks which import the Fed’s monetary policy through currency controls. Nevertheless, the US is alone in providing both monetary and fiscal stimulus
aggressively and remains ahead of curve in G10 countries facing economic adjustment. Much depends on whether the recent bright data spots from the US can become a trend, but compared to deteriorating growth and sentiment number in the Eurozone, the dollar remains well-placed to strengthen as expectations of a recovery rise. However, risks do remain as yesterday’s Fed announcement to extend its liquidity provision programs to alleviate potential stress in markets because conditions remain fragile. In addition to US data, Eurozone inflation and labour numbers will be released today. Initial reactions from ECB members may shed light on policy intentions next week. Any hint of a switch to a
downside bias will weigh on the EUR. Ahead today, in addition to GDP, the employment cost index and jobless claims are due at the same time of 1230 GMT. The Chicago PMI is due at 1345 GMT.