The key theme in the forex markets at the moment is ongoing weakness in the U.S. dollar, which sold off further last week following Fed Chair Janet Yellen’s dovish testimony and disappointing economic data. The Federal Reserve Chairwoman indicated that rates may "not have to rise all that much further to get to a neutral policy stance.”
Gold has been undermined by rising government bond yields owing to major central banks generally turning more hawkish while the still-buoyant equity markets means there has been reduced demand for the perceived safe haven asset. Thus, for the time being, the impact of the weaker U.S. dollar is not having any meaningful impact on the buck-denominated precious metal.
At her testimony yesterday, Fed Chair Janet Yellen came across as more dovish than expected. The dollar fell sharply as investors were reminded that future rate rises will be rather gradual. Stock markets love low-interest rate levels and for that reason, they were able to rise sharply which lifted the Dow to a new all-time high. Investors also liked the look of the latest Chinese trade figures that were released overnight.
Today's latest UK jobs and wages data was overall better than expected, which has alleviated some of the concerns about the falls in real wages. But the key question remains: will the Bank of England maintain its recent hawkish rhetoric? I think it will, and I, therefore, expect to see higher levels for the pound against some of her weaker rivals, including the U.S. dollar.
The U.S. dollar is higher against most major pairs after a jobs report that added more than 200,000 positions. The Canadian dollar was the outlier making gains against the greenback on the back of a similar strong jobs report that validates the hawkish comments from the Bank of Canada in the last three weeks.
The U.S. Bureau of Labor Statistics just reported the June Non-Farm Payrolls figures, and while the data wasn't perfect, it is certainly reassuring for bulls on the U.S. economy. On a headline basis, the U.S. economy added 222,000 jobs in June, solidly above economists' expectations of 175,000 new jobs. In addition, the BLS revised its estimate of jobs growth in the previous two months higher, for a net addition of 47,000 more jobs.
Once the impact of the crude oil price sell-off wears off, the Australian dollar/Canadian dollar currency pair could resume its bearish trend as market participants focus on the divergence on monetary policy between Australia and Canada.
After weaker manufacturing and construction PMI readings earlier this week, all eyes were on the dominant services sector PMI this morning. The PMI was expected to print 53.6 compared to 53.8 in May. As it turned out, it was a hat-trick of weaker-than-expected PMIs for the UK economy, as the services sector scored 53.4. It was, however, a narrow miss and the pound's initial reaction was fairly muted.
The U.S. dollar is mixed against major pairs after a week where Fed speakers offered a mixed narrative. The majority of policy makers agree that the massive balance sheet accumulated during the quantitative easing program from the U.S. central bank should start shrinking sooner rather than later. The point of debate remains the number of rate hikes in the horizon, with St. Louis Fed President James Bullard calling it "unnecessarily aggressive."