US Dollar Awaits Jobs Report After Bank of England

Fundamentals back in focus after central bank action jumpstarts markets

The Bank of England (BoE) exceeded market expectations this week with a 25 basis points rate cut and a restart of its bond buying program to offset the challenges put forth by the British vote to leave the European Union. Governor Mark Carney was clear when addressing British banks that he expects the lower rates to trickle down to households. Central bank after central bank have found it challenging to persuade the market but for the time being the BoE has managed to depreciate the GBP which could boost growth in the long term for the United Kingdom.

Fundamentals are slowly recovering their position as market drivers. Risk aversion and global anxiety has lessened the impact of even the biggest economic indicator in global markets. American jobs also take deeper political importance as the U.S. presidential race heats up after both party conventions are out of the way.

Private payrolls processed by ADP rose by 179,000 ahead of the jobs report by the Bureau of Labor Statistics on Friday. The U.S. non farm payrolls will be released on Friday, August 5 at 8:30 am EDT. Employment remains the strongest pillar of the U.S. economic recovery despite the misstep of the report published in May. The market is expecting the U.S. to add 150,000 to 180,000 jobs after the monster gain of 287,000 last month. Improvements in wage growth and a lower unemployment rate are also forecasted in the U.S. which would boost the USD against major pairs.

The EUR/USD lost 0.128 in the last 24 hours. The single currency is trading at 1.1131 after the Bank of England (BoE) cut the U.K. benchmark interest rate and restarted its quantitative easing program in direct response to the fallout of the Brexit vote outcome. The eye of the market will be awaiting July’s jobs report looking for some stability after the usual range set by May’s 11,000 jobs and June’s 287,000 gains. The expectations for the NFP are lower than the six month average, but so far American jobs have grown at a steady pace despite other components of the economy not being able to follow.

The GBP/USD lost 1.568 in the last 24 hours. The pound depreciated after the Bank of England (BoE) follow through on last month’s comments of a rate cut by summer and restarted its QE program. Yields were lower around the globe as the BoE’s move will keep rates low for longer after rejoining the easing club along with the Bank of Japan (BOJ) and the European Central Bank (ECB).

The USD gained after the announcement in London but now its up to domestic data to justify a higher move for the currency. A rate hike by the U.S. Federal Reserve is not totally out of the question despite a slowdown from the U.S. economy, but the futures market shows a probability for a single rate hike in December as the most likely event. The interest rate divergence will continue to widen, not because of expected U.S. rate hikes, but rather the European Central Bank (ECB) and Bank of Japan (BOJ) going deeper into negative rates. Mark Carney from the BoE is not a “fan” of negative rates but if his kitchen sink approach does not manage to boost economic growth he might be forced into it.

Market events to watch this week:

Friday, August 5
8:30 am CAD Employment Change
8:30 am CAD Trade Balance
8:30 am CAD Unemployment Rate
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza