USD Steady after a Better than Expected Non-farm Payrolls Report

Feb. 1, 2019 (Western Union Business Solutions)  – The calm before America’s jobs report this morning helped the greenback steady above multiweek lows. Ahead of the month’s most important look at the health of the labor market, the U.S. dollar softened against the euro but managed a gain versus counterparts from Japan, Britain and Canada. Sentiment deteriorated for the dollar in January after the Fed left borrowing rates unchanged and sketched a cautious outlook for growth that at best suggested steady rates over the foreseeable future and at worst opened the door to a potential rate cut by year-end. America’s government shutdown likely resulted in slower hiring last month. Forecasts call for cooler job growth of around 165,000 for January, down from December’s blistering pace of more than 300,000. The data will offer evidence of how much of a headwind the shutdown had on the wider economy.

 

EUR

 

The euro held within earshot of three-week highs against the greenback, defying more downbeat data from the bloc that argued against the ECB changing course on stimulus. Few signs of a bottom for Europe’s slowing economy in data showing German factory growth contracted and euro zone inflation moderated to a 1.4% increase, a move further away from the ECB’s near 2% goal. The fact that core inflation unexpectedly improved by a tick to 1.1% helped to limit the blow to the single currency.

 

USD

 

Surprisingly robust U.S. job growth helped the dollar chip away at its Fed-induced losses. While the shutdown pushed unemployment to a seven-month high of 4% in January, from 3.9% in December, it had no discernable impact on hiring as the economy added a stellar 304,000 jobs. Wage growth slowed to 3.2% from 3.3%. The market will likely take the data with a grain of salt as it could overstate some of the strength in the economy that faces crosscurrents from abroad. The data suggests it may be premature yet to price in bets on lower U.S. interest rates this year. On balance, the data is likely to have a limited impact on the buck, leaving its broader bias at the mercy of the Fed’s dovish turn.

 

GBP

 

Sterling sank to one-week lows after U.K. factory data underwhelmed and offered evidence of a fragile economic underbelly ahead of Brexit. Britain’s factory sector grew at the slowest pace in years last month, highlighting how Brexit uncertainty has weighed on manufacturing sentiment. The disappointing data spurred some pound selling after it logged its best month in more than a year when GBUSD appreciated by 3%.


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