Will the Fed still cut after NFP success?9th July 2019
Domestic developments were limited on Friday with the Halifax reporting a 5.7% increase in house prices in the year to July from 5.2% previously. Confidence in the economic outlook remained fragile following weak PMI business confidence releases during the week with expectations of a more dovish August Bank of England inflation report also a negative factor. Sterling fell to 6-month lows below 1.2500 against the dollar following the US employment data but did recover to close just above this level while the Euro hit resistance near 0.8990 before fading to near 0.8960
Headline US non-farm payrolls increased to 224k for June compared with consensus forecasts of 160k while threw a small downward revision to 72k for May from 75k. Unemployment increased slightly to 3.7% from 3.6% as the participation rate increased slightly. Average hourly earnings increased 0.2% on the month compared with consensus forecasts of 0.3% with the annual increase held at 3.1% which maintained expectations of subdued inflation. The stronger pace of employment growth dampened concerns over the underlying economic performance and markets are even now less confident that the Federal Reserve will cut interest rates this year. Although there’s still a strong expectation of a 0.25% cut at the late-July meeting. The Fed Monetary Policy report stated the economy slowed in the second quarter due to weak investment, but the decline in inflation was due to transitory factors which limited the impact.
The Euro starts the week around the 1.1220 after falling sharply to three-week lows near 1.12 on Friday, due to better than expected US NFP data. The pairing had been trading near 1.1270 for the majority of last week. The break of 1.1250 brought fresh sellers following the data and with Fed easing hopes dashed, following the stronger jobs data, a test of the June 2018 lows of 1.1180 could still be on the cards.
Data to watch:
06:00 EUR Trade Balance s.a. (May)
06:00 EUR Industrial Production s.a. (MoM) (May)
23:01 GBP BRC Like-For-Like Retail Sales (YoY) (Jun)
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