In spite of the disappointing outlook conveyed by the most recent FOMC decision, labor market fundamentals in the United States continue to display improvement as evidenced by the latest job creation figures published by the Bureau of Labor Statistics last week. According to the nonfarm employment numbers, US payrolls jumped by 255,000 during the month of July, beating expectations of 180,000 jobs added. Adding to the optimism was the revision higher of the June figures to 292,000. However, the unemployment rate held steady at 4.90%, instead of matching estimates of a fall to 4.80%. The announcement sent the US dollar higher versus peers, leading to the currency to a gain on the week and reversing gold’s momentum higher. Meanwhile, across the Atlantic, the Bank of England opted to accommodate monetary policy on the heels of a number of data points indicating an ongoing contraction in the country’s fundamentals as evidenced by shrinking services, manufacturing, and construction activity. The BoE dropped interest rates by 25 basis points to 0.25% while also opting to expand quantitative easing by GBP 60 billion to GBP 435 billion. Of that GBP 60 billion, GBP 10 billion will be allocated to purchases of corporate debt in an effort to spur business investment instead of further cash hoarding. However, in terms of the outlook, the Central Bank warned about the prospect of further easing measures in light of revised growth expectations for 2017 and 2018. The GBPUSD fell to just above the 1.3000 level as the pressure on the Pound grows. Aside from the BoE decision, the Reserve Bank of Australia also approved additional accommodation for interest rates, dropping the benchmark to a record low 1.50% in an effort to stimulate growth and fight disinflation. Weak retail sales expansion combined with risks in the housing market and an elevated Australian dollar continue to add to policymakers’ woes over the near-term as they seek to spur expansion.
Payrolls Feed Dollar Confidence As BoE Sends Sterling Stumbling
Weekly Report - 08/08/2016