The U.S. dollar index, a common benchmark used to assess the performance of the greenback against a basket of six major currencies, extended losses (-0.3%) during yesterday’s trading session. This comes as the dollar continues licking its wounds following the poor employment data release on Wednesday, which kept NFP expectations low. However, the poor ADP Employment Change results from Wednesday diminished initial jobless claims releasing upbeat results on Thursday, posting 340k vs 345k, while continuing jobless claims posted 2.748M vs 2.775M. The dollar failed to gain traction from the data amid sluggish treasury yields and investors remaining cautious ahead of today's Nonfarm payrolls. The upcoming job reports are expected to add another 750,000 new jobs in August, after posting 943k in July, yet expectations are low following the poor data from Wednesday. It is worth noting that the upcoming job reports are crucial for policymakers to make a decision about tapering its USD 120 billion bond purchase program, which, in case of downbeat results, could lead to expectations of Powell delaying his tapering announcement by another month, as well as extending his monetary policy stance.
The EUR sustained momentum, advancing an additional 0.29% against the dollar and hitting its 1-month top amid a broader sell-off of the greenback and strong data from the Bloc. The Producer Price Index posted bolstering record-high results, releasing a 12.1% annualized increase vs 11% previously anticipated, while monthly figures posted 2.3%, exceeding expectations by 1.2%. The upbeat data propelled chatter that the European Central Bank needs to recall some of the stimulus deployed during the pandemic. Coming up, investors will eye U.S. job reports and Eurozone Markit PMIs, and Retail Sales.
The British Pound rallied 0.46% against the greenback, amid poor NFP expectations lingering and the U.K. government pushing for a tax hike. Prime Minister Boris Johnson is looking to finance an overhauled social care by increasing the NHS contribution by 1.25%. The likely rise in national insurance will see around 25 million Brits paying the tax increase while government officials confirm September's booster jab plan. Covid woes linger in the U.K. economy, as Covid numbers start spiking as of late with the death toll refreshing multi-day highs and infections passing the 38k mark. The Prime Minister is being urged to accelerate the vaccination for 16-17-year-olds, as the country reaches 79.2% of the population with 2 jabs.
The Japanese Yen recorded mild gains (0.04%) against the dollar amid broader weakness on the greenback and news around Prime Minister Suga resigning after 1 year in office. The Japanese media reported that Prime Minister Yoshida Suga will step down from the leadership by the end of September, and he will focus his efforts on establishing competent measures to address the outbreak of the virus and the associated impact on the economy. Japanese stocks rallied over 2%, hitting 30 year high after the news from PM Suga, as market participants expect the next leader will increase economic stimulus.
The Loonie extended gains against the dollar, closing 0.54% higher amid poor job reports expectations lingering among market participants, weighing on the greenback, and sustained Crude oil prices following the OPEC + meeting. The West Texas Intermediate (WTI) climbed over the USD 70 mark during yesterday's session, and today it sustained close levels, testing the resistance on the upside. If the barrel of crude oil sustains above these levels it will have a good opportunity to develop additional upside momentum which will underpin the Loonie. However, U.S. NFP figures will be a fundamental driver during today’s trading session.
The Mexican Peso recorded mild gains against the dollar as pressure amounts over the greenback due to low expectations on job reports compromising the tapering of the stimulus program. Moreover, despite Mexican policymakers increasing the growth forecast of the economy, private sector economists lowered their Gross Domestic Product forecast for 2021 to 5.99%, below the 6.2% revised up from Banxico. The surveyed economists also increased their forecast of inflation, with the expectation to close 2021 at 6.06%, above the 5.94% estimated in January and well above the 3% +/- 1 inflation target from Banxico.
The Chinese Yuan extended further gains against the greenback following the poor employment figures earlier this week, which diminished expectations on U.S. job reports coming up today. However, Chinese data continues to struggle from the impact of its latest wave of Covid. Caixin China Services Purchasing Managers Index plunged to 46.7 in August from 54.9 in July, missing expectations at 52. The Yuan did not react much to the data disappointment thanks to the broader weakness in the dollar.
The Brazilian Real failed to advance against the dollar, retracing 0.1% during yesterday’s trading session amid Brazil’s national statistics institute releasing the figures for second-quarter growth, showing that the Gross Domestic Product contracted 0.1% in the three months to June. The poor results come following concerning comments from policymakers highlighting the risks around inflation and the impact of the water crisis. Moreover, on the positive side, the Lower House unexpectedly voted on and approved an income tax bill, pushing ahead with the economic agenda. Stock markets are expected to suffer as the bill creates a tax on dividends.