Good morning,

USD: Jobs aplenty to rescue the USD

It may not have bottomed yet but the US dollar bounced back on Friday afternoon courtesy of the latest run of the US jobs report. The US economy added 209,000 jobs in the month of July with the unemployment rate falling to a fresh low of 5.3%. The key denominator of economic prosperity at the moment is wages and they also grew by 2.5%, beating expectations.

The USD move on Friday combined with Thursday’s knock to GBP courtesy of the Bank of England’s Quarterly Inflation Report has pushed GBPUSD back into the 1.30s. Of course, one swallow does not make a summer and one data point does not equal a rebound but dollar strength has started on weaker foundations in the past. Both politics and comments from the Federal Reserve are hurting the USD at the moment and so we will need to see both of them change for the positive before we can get behind the USD again.

We will have to wait until Friday for the next run of US inflation data.

GBP: Stronger sentiment but what about output?

We know the Bank of England were somewhat glum on the prospects for the UK economy last week, cutting growth forecasts and emphasising that we are currently in the “maximum rate of pain” for consumers. The PMI surveys of economic sentiment within the manufacturing, construction and services sectors were overall better than expected however. The divergence between what the sentiment surveys say and what output numbers will also tell us remains the knife edge that sterling is trading on at the moment.

If output can pull higher alongside sentiment then investors may be willing to take on the Bank of England’s negativity. However, any stubbornness on the part of output, GDP numbers and dashed hopes from industry will only be met by weak GBP performance.

Politicians remain on the summer holidays and as such the cacophony around Brexit has dipped to a hum.

EUR: No giving up but little progression

We open the week with the single currency still with its boot on the neck of sterling. Further upside however will be hard fought and will depend on a decent run of economic data within which the market can find and hold on to a narrative of inflation creation. Without that, the single currency can remain elevated on a relative basis but will struggle to extend from here.

Have a great day

Jeremy Cook, Chief Economist