Caution was in evidence ahead of Friday’s US employment report.

Caution was in evidence ahead of Friday’s US employment report with relatively narrow ranges prevailing. Risk appetite overall held steady with global equity bourses near record highs.

US bond yields moved higher amid hopes that the delta variant impact could be contained. Wall Street equities posted gains with a record closing high for the S&P 500 index.

The dollar overall secured limited net gains, primarily against low-yield currencies. EUR/USD settled below 1.1850 at around 1.1825 amid a lack of underlying demand. The Bank of England decision was close to expectations with solid risk appetite underpinning the Pound as GBP/EUR continued to test 1.1775. Commodity currencies posted net gains, although the firm US dollar triggered a retreat from intra-day highs.

There were tight currency ranges ahead of Thursday’s New York open with important caution ahead of the latest US jobs data. EUR/USD was unable to sustain a move back above 1.1850, but resisted further selling pressure.

US initial jobless claims declined to 385,000 in the latest week from a revised 399,000 the previous week and close to consensus forecasts while continuing claims declined sharply to 2.93mn from 3.30mn the previous week. The data did not provide further significant evidence on the labour-market trends.

The US goods trade deficit widened to $75.7bn for June from $71.0bn the previous month and above expectations of $74.0bn with a strong increase in imports for the month. The Euro overall remained on the defensive later in the day with vulnerability on the crosses, especially given expectations of dovish ECB policies. Although the dollar struggled to make headway against commodity currencies, EUR/USD retreated to near 1.1830 as tight rages dominated.

The latest US employment report will be released on Friday with market expectations of an increase in non-farm payrolls of around 870,000 and a decline in the unemployment rate to 5.7% from 5.9%. Strong data would reinforce expectations of an early Fed move to taper asset purchases while weak data would trigger renewed speculation over caution. The dollar maintained a firm tone in early Europe on Friday amid short covering with EUR/USD around 1.1825 as it struggled to secure support.

US equity futures moved higher on Thursday and US yields also regained ground with the 10-year yield above 1.2%. Overall risk conditions were more favourable with a fresh flow of funds into commodity currencies and there was a dip in defensive support for the yen. In this environment, USD/JPY posted a net advance to 109.70.

Fed Governor Waller stated that the central bank may be able to pull back on the amount of monetary stimulus sooner than some think. US yields remained higher on the day and equity futures posted gains with USD/JPY around 109.80 as defensive yen demand remained weaker.

Minneapolis head Kashkari maintained a broadly dovish stance with comments that the economy is still in a deep hole, although he was optimistic that there would be strong jobs reports in the autumn which could meet the substantial further progress bar.

There was a sharp decline in Japanese household spending for June while coronavirus concerns were important in curbing underlying confidence. The yen was little changed on the crosses with the dollar still around the 109.80 area with EUR/JPY around 129.80.

The UK construction PMI index declined to a 5-month low of 58.7 for July from 66.3 the previous month and well below consensus forecasts of 64.0. There were still important supply-side difficulties and strong upward pressure on costs, maintaining underlying concerns over inflation.

The Bank of England held interest rates at 0.1% following the latest policy meeting, in line with consensus forecasts. There was a 7-1 vote for maintaining the asset-purchase programme as Saunders voted for purchases to be scaled back. There was a sharp upward revision to the inflation forecasts with the rate now expected to be 4% for the fourth quarter of 2021 compared with the 2% target. The bank also noted that upside inflation risks had increased. Although several members on the committee considered that the conditions for policy tightening had been met, the committee overall still wanted to wait before withdrawing stimulus.

Markets had been expecting a split vote which limited the potential impact, although bond yields did move higher. Sterling overall was unable to make significant headway after the release with no evidence of a rapid move towards higher interest rates and GBP/EUR pushed towards 1.1775.

Overall Sterling sentiment held steady while gains in commodity currencies also helped underpin confidence.

Economic Calendar

07:00German Industrial Production (M/M)(JUN)0.50%-0.80%
08:30GBP Halifax HPI (M/M)(JUL)8.80%
09:00Industrial Output YY WDA(JUN)21.10%
09:00Industrial Output MM SA(JUN)-1.50%
13:30USD Average Hourly Earnings (M/M)(JUL)0.30%
13:30USD Private Nonfarm Payrolls (JUL)600K662K
13:30USD Non-farm Payrolls(M/M)(JUN)850K
13:30United States Unemployment Rate(M/M)(JUL)5.90%
13:30CAD Employment Change (M/M)(JUL)230.7K
13:30CAD Full Employment Change(JUL)-33.2K
13:30CAD Unemployment Rate (M/M)(JUL)7.80%
15:00CAD Ivey PMI(M/M)(JUL)71.9
18:00USD Baker Hughes US Oil Count385
20:00USD Consumer Credit(JUN)35.28B

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.