FX Trading focus: US incoming data focus after hawkish FOMC. BoE in dovish pushback against market hike expectations.
The US dollar followed through stronger yesterday on the momentum off the back of the hawkish Powell presser Wednesday, but has come in for a chunky reversal overnight and today since a somewhat softer than expected ISM services survey yesterday (nudged lower to 54.4 vs. 55.3 expected and 56.7 in September, with the employment sub-index dipping back below 50 at 49.1 vs. 53.0 in September). Wouldn’t it be ironic if we also were to get a soft US jobs report today that takes US yields back to their starting point of the week, making Powell’s hawkish message so much noise, at least until the next incoming data point jerks the market the other way? Interestingly, the USD is selling off ahead of today’s US data releases even as short US yields are posting new highs for the cycle
Specifically in today’s jobs report, in addition to any strong directional surprise in payrolls (multi-month grain of salt needed with this data series, as single releases require further corroborating evidence), we should keep both eyes on the average hourly earnings survey. Arguably, if we get the expected 0.3% month-to-month average hourly earnings print today after a couple of prior prints of a similar size, observers may begin to judge that the annualized rise in earnings is beginning to look far less threatening at sub-4.0%. The year-on-year is expected to drop to a 15-month low of 4.7% today. A significant upside surprise in earnings is perhaps could generate significant volatility.
Worth considering how the dovish Bank of England meeting yesterday (see more below) is weighing heavily on sterling, as it should, with the Bank of England reluctant to signal much tightening energy when it sees an incoming recession. Sterling is down sharply across the board, with EURGBP suddenly well backed up within the old range and now far away from the sub-0.8600 range support. The next area between the 0.8800 and pivot high of 0.8870 area looks key for whether sterling weakness is set to become a bit more unhinged, and the next key event-risk test is likely how the market greets an austere Autumn budget statement on November 17.