6 aug 2021

Weekly Market Update 6 August – US NFP numbers exceeded markets’ expectations and BOE left its monetary policy unchanged

Weekly Market Update 6 August – US NFP numbers exceeded markets’ expectations and BOE left its monetary policy unchanged

1. The greenback rallied higher, outperforming most of the major currencies this week, aside from the Aussie and Kiwi, as better than expected numbers from Friday’s NFP data breathed life back into the Dollar. The US economy added 943K jobs in July 2021, the highest number in eleven months. This surpassed the markets’ expectations of 870K, as the rapid pace of COVID-19 vaccinations boosted the country’s re-opening efforts. That said, despite the strong employment data, the NFP data is still 5.7 million shy of its pre-pandemic level in February 2020. Keeping in mind that the Fed has reiterated its commitment to keep the current accommodative monetary policy stance, we could be seeing a limited upside in the Dollar’s rally. Looking ahead, on the economic data front, investors will be keeping a close watch on the consumer price report for July which should be relatively consistent with the previous month’s 13-year high of 5.4 percent and well above the Federal Reserve’s target of about 2 percent. Other notable publications include the Producer Price Index and Unemployment Claims data.

2. Across the Atlantic, Euro nosedived following a stronger Dollar and was the worst performing G7 currency for the week. Keeping in mind that the ECB made it clear that there will be no tapering of asset purchases while increasing their tolerance level for higher inflation, the Euro could extend its decline. Elsewhere, Pound held steady after the BOE left its monetary policy unchanged on Thursday while raising inflation forecasts for 2021. More clarity was provided with anticipated hawkish turns as the BOE said that “some modest tightening” of monetary policy over its forecast period was likely to be necessary if the economy continues to improve. Meanwhile, easing of the social-distancing rules in July amid high vaccination rates also helped to boost the Sterling. On the economic data front, investors will turn their attention to the Eurozone industrial activity data, German ZEW Economic Sentiment Index as well as Britain’s preliminary estimate of second-quarter GDP growth which should reflect the economy’s growth with re-opening efforts in place.

3. Commodity currencies, especially the Aussie and Kiwi outperformed their peers as RBA and RBNZ took on a more hawkish stance with tapering plans scheduled ahead. Meanwhile, the Loonie fell short, dragged down by falling oil prices as the spread of the Delta variant of the virus threatened the demand outlook. However, the downside in oil prices was capped by rising tensions in the Middle East, as Israel and Iran engaged in rocket exchanges after a tanker off the coast of Oman was attacked last week.

Salzworth Asset Management