Highs and lows for sterling
Sterling started Friday gaining ground against the euro as expectations were high for a better than expected US non-farm payroll data announcement later in the day. However, a much lower-than-expected US non-farm payrolls figure saw sterling plunge nearly two cents against the euro in just over an hour, hitting a fresh five-month low, and make a second straight day of gains versus the US dollar. Construction industry growth data showed a significant increase in the sector compared to August, although this was largely overlooked in the wake of the more influential US labour data.
Sterling gets off to a quick start this week, with services Purchasing Managers’ Index (PMI) data released later this morning. Following Friday’s better-than-expected figures from the construction industry, a strong reading here could see sterling make gains given its significance to the British economy. Manufacturing production figures on Wednesday will provide the next point of interest, and following a disappointing figure last time, positive manufacturing production growth could provide sterling with a welcome boost.
Thursday’s interest rate decision is likely to pass with little fanfare, with a rate hike off the table for the time being. Should there be any change from the 8-1 split in favour of keeping rates on hold, though, we could see further movement for sterling.
Euro ended week on a strong note
The euro enjoyed a strong end to the week on Friday as it moved back up against sterling and the US dollar, particularly after downbeat US jobs data dampened optimism over the US economy. The eagerly-awaited US nonfarm payrolls report for September came out much worse than expected, which in turn strengthened the single currency, which is the second-most traded currency in the world.
Over the weekend we had the Portuguese General Election and the centre right coalition party was re-elected but without an absolute majority. This is a much needed fillip for the Eurozone as it seems that the Portuguese electorate have “accepted” the need for reforms and austerity.
After a strong week the euro can look forward to more positive news dripping through the markets. On Monday the Eurozone releases retail sales and Purchasing Managers’ Index (PMI) data. The latter is forecast to fall to 53.9 from 54.3, while retail sales is likely to fall to a negative figure of -0.1%, down from 0.3%. If the Eurozone economy manages to improve on last month’s figure we could see the single currency break through key resistance levels against its major currency pairs. Another key piece of data will be manufacturing orders from Germany on Tuesday, which is forecast to vastly improve from -1.4% up to 0.4%. It is looking like a busy week, with many opportunities for data to affect euro markets.
US rate rise timeline back in the spotlight
The spotlight last week was on non-farm employment change data on Friday, which turned out to be much lower than expected – in fact, showing the lowest figure since April this year. This caused the US dollar to weaken against the majority of its peers. Average hourly earnings also dropped against the expected figure, in line with reports of personal income dropping earlier in the week.
We can look forward to another busy week for the US dollar, with various US Federal Reserve members speaking up on the focus of the week, which will be the US Federal Reserve minutes on Thursday. It will be interesting to gauge members’ views on an interest rate hike this year, with notable members being quite split on when would be a good time to start to raise rates. In terms of data, Monday sees the ISM Non-Manufacturing Purchasing Managers’ Index (PMI), which is expected to show continued growth, with the weekly unemployment claims on Thursday expecting to portray a stable figure.
Busy week for commodity countries
This week is extremely busy for the commodity currencies, with major releases out each day. Today sees the release of New Zealand’s NZIER business confidence data, which fell drastically last quarter, so better results are need this time around to support sentiments surrounding the New Zealand economy.
Australia has a very busy day tomorrow, with three major data releases including cash rate data, which is expected to stay at 2%.
Significant data releases from Canada starts on Tuesday, with trade balance data due. It reaches its pinnacle on Friday, with the employment change and unemployment rate due, which could effect changes in the market.