Dollar looking rosier

The greenback rallied back from the lower levels it plumbed yesterday but there is still a huge amount of unease around the dollar as markets react to both  local and international political events. That being said EURUSD is back below 1.20 once again with GBPUSD also lower. There’s certainly a risk-off tone to markets this morning, with the USD gaining against most Asian currencies but the tried-and-tested safe havens of the CHF and JPY coming out on top.

This recovery in the US currency has also been aided by better GDP numbers; with the US economy now growing at 3.0%, the fastest rate in two years. While this morning’s numbers are courtesy of revisions and more accurate data, they’re looking healthy, with personal consumption growing at close to twice the pace of Q1 and government spending being the only laggard. What does this mean for the Fed? Faster growth should mean a faster pace of rate rises, but PCE (the Fed’s preferred measure of inflation) still looks somewhat benign, meaning the Fed can keep their foot on the gas a little while longer.

The European Union is beginning to look impatient

Brexit headlines are once again casting the UK in a poor light with the EU President Donald Tusk telling the British negotiating team to ‘hurry up’ so as to be able to at least have a deal on the table when the Article 50 countdown ends. Further conversations on the nature of a transition deal are expected in the coming weeks but October’s soft deadline is looming large.

Sterling has rebounded a little but remains at depressed levels and close to the trade-weighted historical lows that we have highlighted for a few weeks now. Last time sterling was this low it prompted a slight response from the Bank of England to bring the pound the higher; will a speech from a BOE member do something similar soon?

Jobs, jobs, jobs

The calendar’s relatively light for the rest of the day, but in the meantime, markets will be gearing up to Friday’s all-important jobs report. Today’s ADP employment change reading was particularly strong so there’s no reason to believe in a slip-up of payrolls on Friday, but Trump remains well behind on his self-imposed jobs target.

Have a great day.