At least one dove (EUR)

The advent of September evidently does not mean the end of the holiday season and a return to normal activity in the FX market. Wednesday was another day of limited ranges and lack of direction. On the fringes, the Australian dollar (AUD) firmed by 0.5%, while the NOK, CAD and USD faded 0.3%, a third of a US cent. Sterling (GBP) was on average unchanged, as were the EUR and CHF.

In Europe, the debate continues about European Central Bank quantitative easing (EUR) and when it should be brought to an end. With an ECB policy decision next Thursday, members of the Governing Council are making their case for what should happen next. In terms of profile, the hawks seem to overwhelm the doves. Another of them was out on Wednesday. Bundesbank President Jens Weidmann said in a speech that “upside risks [to inflation] currently predominate”. As for the ECB’s Pandemic Emergency Purchase Plan (PEPP), “the ‘P’ stands for pandemic, not permanent”. Mr Weidmann is well-known for his opinion on the matter, so yesterday’s comment attracted no particular attention.

Setting a more dovish tone, credit rating company Fitch argues that “a normalisation of monetary policy in the Eurozone remains unlikely at least until the middle of the decade”. Fitch’s director of economics believes “key [ECB] interest rates are set to remain unchanged until 2025, and bond buying could continue until at least 2024”.

Mixed messages

There were no shocks among the purchasing managers’ indices, though there was the odd cause for concern. The big surprise was ADP’s employment change figure (USD), which showed US payrolls growing by much less than expected in August.

ADP said private sector employment increased by 374k last month, considerably less than the 600k+ predicted by analysts. The lower number puts a question mark over the projection that Friday’s employment report will show nonfarm payrolls increasing by 750k.

The manufacturing PMIs on both sides of the Atlantic were all comfortably within the growth zone above 50. For the Eurozone as a whole (EUR), the reading was 61.4, almost exactly in line with the provisional figure. The strongest component, the Netherlands’ 65.8, was a five-month low while Greece’s 59.3 was an 11-year high. The problem, such as it was, lay in the widening gap between demand and supply. Manufacturers could shift more product but supply constraints limit their ability to make it. The same applies in Britain (GBP), where the 60.3 PMI was limited by “supply chain issues”.

US jobs (USD)

On (usually) the first Friday of the month the US Bureau of Labor Statistics publishes the monthly change in nonfarm payrolls (USD). It is arguably the most important single statistic anyway, but it has special significance at the moment as a pointer to what the Federal Reserve might be thinking about monetary policy.

Ahead of that, today’s ecostats from Europe cover Swiss employment, inflation, retail sales and GDP (CHF). The Eurozone reports on producer prices (EUR). This afternoon the US data relate to jobless claims, factory orders and the trade deficit (USD). Canada reports on building permits and the balance of trade (CAD).

Friday brings the second round of PMIs, this time for the services sector. The readings are likely to be distorted by the imposition of Covid lockdowns and their removal. Other than the PMIs, the only European ecostats are for Norwegian unemployment (NOK) and Eurozone retail sales (EUR). Britain’s services PMI (GBP) is forecast to be four points lower on the month at 55.5.