Daily Market Pulse

Poor employment data undermine the dollar and NFP expectations

6 minute read


The U.S. dollar index, a composite used to benchmark the performance of the greenback against a basket of six major currencies, extended losses on Wednesday's session, closing 0.23% lower following the release of poor data in the U.S., diminishing tomorrow’s Nonfarm Payrolls expectations. The ADP Employment Change missed expectations posting 374k vs 613k private-sector jobs expected, while ISM Manufacturing Purchasing Managers’ Omdex’s headlines beat estimates releasing 59.9 vs 58.6 previously anticipated. ISM Manufacturing Employment Index, followed the same trend as ADP estimations, missing 51.4 expected and releasing 49, signaling a contraction after posting below the 50-mark. The poor employment figures raised concern among market participants about Friday’s highly expected Non-farm Payrolls and job reports, which is fundamental for policymakers to assess tapering its bond purchase program. 


The EUR sustained momentum rallying 0.28% against the greenback amid disappointing data from the U.S. and ECB tapering chatters on the bloc’s recently upbeat statistics. The poor job data from the U.S. raised concerns over upcoming NFPs and the effect of Powell’s tapering assessment which kept yields under pressure and the greenback without support. Additionally, German Bundesbank President Jens Weidmann backed the ECB tapering chatters which fueled momentum on the EUR through the course of yesterday’s trading session. Data wise. The bloc’s Markit PMIs for august and German Retail Sales failed to impress as it dragged low morale from previous months, although the Eurozone Unemployment rate bang on expectations favored the ECB hawks.


The British Pound extended shy gains against the dollar, edging 0.15% higher amid poor market sentiment due to Covid and Brexit jitters. Poor ADP employment data in the U.S. sustained the dollar, although Sterling failed to consolidate further gains amid the August bank holiday in the UK, Covid cases linger at 35.6k daily cases which have kept Brits low in morale and combined with the fear of Christmas shortages due to Brexit. Moreover, Markit manufacturing PMI data continue to underpin the Pound, releasing 60.3 vs 60.1 previously anticipated, while Nationwide Housing Prices showed solid resilience growing 11% annualized in August while expectations were set at 8.6%.  


The Japanese Yen remained virtually unchanged against the greenback after the dollar tried to break a key level on the upside but failed to consolidate gains after the release of ADP Employment Change figures which reduced the likelihood of U.S. policymakers to imminently taper the bond purchase program. Despite the subdued tone of the Yen, data in Japan underpinned the retracement triggered by U.S. data. The Capital Spending rose 5.3%, despite market consensus expecting a contraction of 6.2%, while Jibun Bank Manufacturing PMI posted 52.7, above 52.4 expected. Moreover, early in the session, the Bank of Japan released its monetary base, picking up 14.9% vs 13.1 previously anticipated. The pair continues to trade in the 3-week channel testing the upper bound of the range. 


The Canadian Dollar sustains pressure over the greenback, although it failed to capitalize amid market caution and investors patiently waiting for drivers to renew impetus. The West Texas Intermediate (WTI), sustained higher prices just below USD 70 per barrel, amid the OPEC+ meeting which so far hasn't affected price stability or extended into the Loonie. Moreover, Prime Minister Justin Trudeau announced his Liberal Party platform, which outlines CAD 78 billion in new premises of which were part of his earlier campaign.  The Prime minister is facing an unexpectedly tight race for re-election against his rival Erin O'Toole, the conservatives leader. The latest polls show that Tredeau and O'toole are in a statistical tie. 


The Mexican Peso extended gains during yesterday's trading session, amid poor data in the U.S. compromising the likelihood of tapering stimulus and Banxico revising up the growth projection for the Mexican economy.  The latest report from policymakers increased the Gross Domestic Product forecast for 2021 to 6.2%. The revision came off the back of better than expected economic performance in the second quarter of 2021, which posted a 19.6% growth compared with the same quarter in 2020. Additionally, the report recognized the government’s efforts in deploying the vaccination rollout program which resulted in the continued expectation that the gradual reactivation of economic activity would continue in the second half of 2021. 


The Renminbi progressively advances against the greenback, recording 0.04% gains following the broader pressure over the dollar amid poor employment data. Moreover, economists have revised down the GDP projections for the Chinese economy. A slowdown in the second half was inevitable after the rapid bounce from the Covid slump. However, pressures ranging from a recent delta outbreak and new restrictions on high polluting industries to a “common prosperity agenda”, led to regulatory tightening on the technology, education, and property sectors which will have an impact on the economic output while industries adjust. 


The Brazilian Real retraced 0.62% during yesterday’s trading session amid poor data from the U.S. and comments from Roberto Campos Neto, President of Brazil’s Central Bank. The spokesman said yesterday that the BCB has no plan for the price of the dollar, reassuring that FX is not part of their mandate and that International Reserves are a buffer for turbulence in FX liquidity. However, the President of the BCB highlighted that the biggest threat to economic growth in the eyes of policymakers is inflation out of control. The water crisis could complicate things significantly, following the unexpected electricity tariff readjustments which can have a big impact on inflation. The electricity bill impact on the IPCA inflation index in 2021, with the recent increase, is likely to be around 11% or 12%, but it will probably be a little higher. 


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