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US dollar bolstered despite disappointing payrolls

currency-newsUS dollar bolstered despite disappointing payrolls
The US dollar strengthened at the end of last week as expectations for faster monetary policy tightening from the Federal Reserve supported USD despite underwhelming US payrolls figures.

Meanwhile, the pound is buoyed so far this morning, with GBP/EUR moving higher at €1.1744 and GBP/USD strengthening at $1.3258. GBP/CAD is flat to C$1.6992, while GBP/AUD is subdued at AU$1.8881 and GBP/NZD edges higher at NZ$1.9651.

Looking ahead, will dire German factory orders data released this morning leave the euro on the back foot at the start of the week?


What’s been happening?

The US dollar firmed on Friday as mixed US data appeared to leave expectations intact for the Federal Reserve to accelerate monetary policy tightening.

Despite US non farm payrolls disappointing by coming in well below forecast at 210,000, instead of the 550,000 expected and down from October’s upwardly revised 546,000, the US unemployment rate fell more-than-expected to 4.2%, lower than the 4.5% forecast, and in turn supported the US dollar.

At the same time, November’s ISM non-manufacturing PMI unexpectedly jumped to indicate a record high pace of expansion in the services sector, suggesting a strong US economic recovery.

The euro made gains on Friday after European Central Bank (ECB) President Christine Lagarde said the Bank ‘would not hesitate to act’ once conditions for a rate rise are met and downplayed concerns over the Omicron variant.

EUR gains were tempered however, due to its negative correlation with the US dollar.

Meanwhile, the pound fell at the end of last week’s European session after Bank of England (BoE) policymaker Michael Saunders said it is best to wait for more data on the impact of the Omicron variant before taking action. The comments added to uncertainty over a rate hike from the central bank at its December meeting.

Downwardly revised finalised UK services PMI data for November to 58.5 from initial estimates of 58.6 also dented Sterling.


What’s coming up?

Starting this week’s session were far worse-than-expected German factory orders that indicated a contraction of -6.9%, instead of a more modest -0.5% fall forecast, which appears to be weighing on the euro this morning.

More German data released tomorrow may drive additional volatility in EUR with more industrial production data and an expected decline in Germany’s ZEW economic sentiment index.

The main focus for USD investors will be later in the week with more jobs data published ahead of US inflation data for November released on Friday that is forecast to have accelerated again to 6.7%.

With notable UK data releases thin until UK GDP figures for October on Friday, the UK Covid-19 situation, Northern Ireland protocol talks and BoE rate hike bets will likely be the main drivers in GBP.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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