Market positioning prevailed on Thursday ahead of Friday’s key US jobs data with whisper numbers tending to move lower.

Market positioning prevailed on Thursday ahead of Friday’s key US jobs data with whisper numbers tending to move lower. Overall risk appetite held firm with negative real interest rates underpinning sentiment.

Treasuries were little changed with the 10-year bond yield just below 1.30%. Wall Street equities posted fresh record highs. Asian markets overall were mixed with a strong advance in Japan as PM Suga stepped down.

The dollar was unable to gain support and dipped to 4-week lows ahead of the jobs data. EUR/USD edged higher to 4-week highs just above 1.1880. Yen and Swiss franc demand remained weaker on the day. GBP/USD moved above 1.3800 as firm risk appetite and a weaker dollar triggered gains. Commodity currencies posted significant net gains on global recovery hopes.

The Euro was unable to make further headway ahead of Thursday’s market open, although underlying sentiment held firm amid expectations of further hawkish rhetoric from some ECB members. In this environment, there was a reluctance to engage in short Euro positions ahead of next week’s ECB council meeting.

US initial jobless claims declined to 340,000 in the latest week from a revised 354,000 previously and slightly below consensus forecasts of 345,000. Continuing claims recorded a significant decline to 2.75mn from 2.91mn previously and below expectations of 2.78mn.

Challenger reported that the number of job cuts declined to below 16,000 for August from close to 19,000 the previous month and the lowest reading since June 1997.

The labour-market data should have underpinned confidence in the jobs outlook, although the dollar was unable to gain significant support from the data. Markets have priced in an improving trend and there were also significant reservations ahead of Friday’s employment report.

A weaker than expected release on Friday would further dampen expectations of any near-term Fed move to taper bond purchases.

The US goods trade deficit declined to $70.1bn for July from a revised $73.2bn the previous month and below expectations of $71.0bn as imports declined slightly.

The dollar overall lost ground with 4-week lows amid a notable advance in commodity currencies on the day. EUR/USD strengthened to 1.1870 before correcting slightly at the European close. The dollar edged lower on Friday with unease over the risk of a weaker employment report and choppy trading inevitable following the data, especially with US markets closed on Monday. EUR/USD was around 1.1875 and near 4-week highs, but there will be the potential for a dollar jump if the increase in payrolls is well above expectations of 720,000.

US Factory orders increased 0.4% for July after a 1.5% increase the previous month and in line with consensus forecasts which had little market impact.

Wall Street equities posted further gains after the New York open as overall risk appetite held firm while bond yields overall were little changed. The yen was unable to gain significant support given the firm risk conditions. In this environment, USD/JPY was held close to 110.00 against the Japanese currency at the European close.

Japan’s PMI services-sector index dipped to 42.9 from 47.4 previously and the lowest reading since May 2020, although companies were looking to increase employment levels. Prime Minister Suga announced that he would step down as Prime Minster and not stand in the leadership ballot this month. The announcement triggered gains in Japanese equities amid hopes for increased fiscal support. The yen also edged lower, although currency-market reaction was muted.

China’s Caixin PMI services index dipped sharply to 46.7 for August from 54.9 previously and well below consensus forecasts of 52.6 as unease over coronavirus trends sapped support. The Caixin data mirrored the official PMI data which maintained unease over the outlook, especially with the authorities re-prioritising the economic priorities. Overall equities were mixed in Asia with USD/JPY settling just above 110.00 ahead of the US jobs data with EUR/JPY around 130.70.

There were no major UK data releases during Thursday and no significant comments from Bank of England officials. Markets will be monitoring any rhetoric once the holiday season draws to a close next week and this will be particularly important given the appointment of a new chief economist at the central bank.

Sterling was able to gain net support from solid risk conditions during the day as equity markets made headway. There was also an element of confidence in the global growth outlook which helped underpin the UK currency. After several attempts, GBP/USD was able to break above the 1.3800 level which helped trigger further net buying. GBP/EUR also found support at 1.6250.

There were media reports that Prime Minster Johnson will announce a National Insurance increase to fund social care, but Sterling was little changed in early Europe as global events dominated.

Economic Calendar

Expected Previous
08:45 Markit/ADACI Svcs PMI(AUG) 58
08:50 Markit Serv PMI(SEP)
08:55 EUR German PMI Services(AUG)
08:55 EUR German PMI Composite(AUG)
09:00 Euro-Zone PMI Services(AUG)
09:00 Euro-Zone PMI Composite(AUG)
10:00 Euro - Zone Retail Sales (M/M)(JUL) 1.50%
10:00 Euro - Zone Retail Sales (Y/Y)(JUL) 5.00%
13:30 USD Average Hourly Earnings (M/M)(AUG) 0.40%
13:30 USD Average Hourly Earnings (Y/Y)(AUG) 4.00%
13:30 USD Non-farm Payrolls(M/M)(JUL) 870K 943K
13:30 USD Private Nonfarm Payrolls (AUG) 700K 703K
13:30 United States Unemployment Rate(M/M)(AUG) 5.40%
14:45 USD Markit PMI Composite(AUG 01)
14:45 USD Markit Services PMI(AUG)
15:00 USD ISM Non-Manufacturing PMI(AUG) 64.1

*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.