ECB warns markets to expect tighter financial conditions

The euro’s stellar session yesterday followed broad-based US dollar weakness as well as the European Central Bank minutes from their latest policy meeting. Members of the rate-setting committee said that some tightening in financial conditions is to be expected in the near future, and the market adjusted to follow the ECB’s lead. This, allied with a shoot higher in German bond yields left the EUR as one of the strongest performing currencies yesterday.

Poor ADP figure sets up the dollar for disappointment

The dollar traded weaker yesterday. Private payrolls figures compiled by ADP, often seen as a precursor to the all-important Nonfarm Payrolls today, fell below expectations with 158,000 jobs added. While the correlation between the ADP numbers and today’s from the Bureau of Labor Statistics isn’t the strongest, it’s sent a shiver through the dollar, pushing the trade-weighted USD-index back toward weekly lows. Today’s nonfarm payrolls are seen adding just shy of 180,000 jobs with the unemployment rate sticking to the lowest levels seen since the beginning of the dotcom boom and bust in 2000. As is often the case, average hourly earnings will be closely watched, particularly given the neutrality of Wednesday’s Federal Reserve minutes release. A strong jobs report today would be fresh impetus for the Fed to look closer at kicking off its plan to sell off some of the $4.5 trillion stash of bonds that sit on the bank’s balance sheet following the financial crisis.

Bank of England beginning to recognise a loss of momentum

External member of the BoE’s Monetary Policy Committee Ian McCafferty yesterday noted that the UK’s starting to drift from its longer-term growth path, with much of the slowdown falling onto the shoulders of overburdened consumers – implicitly recognising that high levels of inflation are becoming a problem for the man on the street. Nonetheless, McCafferty was reluctant to firmly commit to higher rates any time soon – slowing business investment and high levels of political uncertainty will keep low rates on the table for now.

Have a great day.