March 10, 2017 (Tempus Inc.) – This morning’s Employment Situation figures validate the labor sector’s consistent good run, but the U.S. Dollar is not reaping any benefits. Thus far, EUR, CAD, AUD, NZD, and the Nordic currencies are up against the “buck” by half a percent since the release. The data also revealed that Avg. Hourly Earnings grew at a 0.2% pace, less than the expected 0.3%, but January’s numbers were revised upward. It’s likely that market reaction thus far reflects a sentiment of certainty over a March hike, but that the indicators are not solid enough to price in three hikes for the year.
Optimism elsewhere is also pushing the greenback lower. Canadian unemployment fell to 6.6% and 15K jobs were added. It was estimated that there would actually be a contraction of about 5K jobs so this helps the “loonie” mitigate losses from oil prices sliding. The hawkish tone of the European Central Bank can also be interpreted as a sign of waning policy divergence between the two regions as the central bank prepares to get step away from intervening and using economic crisis rescue measures. BDXY, Bloomberg Dollar Spot Index is down almost half a percent.
The Euro is at its highest level since February 16th, rising on the basis of a much better outlook from the ECB. Officially, the next nine months will have less sovereign bond purchases and ECB President Mario Draghi explained that there was reason to upgrade inflationary targets for 2017 and 2018. The risks to growth have also diminished, which has Euro bulls raving.
Although we still believe the mounting political problems in Europe will keep gains subdued, the ECB’s ability to slowly start to retreat from injecting any help into the economy of the Euro-bloc is an appreciating element for the shared currency. Any major changes to the fluctuation will not be a surprise as the EUR/USD pair has been wild since last year’s election.
Pound Sterling was under pressure until the U.S. NFPs came out, primarily losing ground on the basis of underwhelming data on their side of the Atlantic. Britain seems to be in trouble. Industrial Production contracted almost as much as expected by 0.4% last month. More worrisome, Manufacturing contracted by 0.9%, worse than the foreseen (-0.7%).
Along with trouble in both sectors, the trade deficit was higher than expected while also revised higher for January. Coming up with a Brexit deal that shall be presented once Article 50 is invoked has kept Pound on a depreciating trend, but now that fundamentals seem under threat, we believe GBP is still in search of a bottom. The “quid” is 3.9% weaker than its 2017 high reached on February 1st.