Global Themes

The U.S. dollar was mildly weaker Friday though moves were limited with players hesitant to stake major bets after the U.S. instituted tariffs on some Chinese goods and ahead of America’s monthly jobs report. The euro held on to a three-week high, supported by heartening data on the bloc’s biggest economy, Germany. The yen, sterling and Canadian dollar were largely flat. Emerging markets were generally weaker, reflecting underlying unease after U.S. tariffs on $34 billion worth of Chinese exports to the U.S. took effect just after midnight ET. While the move could prove the opening salvo in a trade war between the world’s two biggest economies, markets have so far taken the news in stride given how it well choreographed ahead of time. Meanwhile, confidence in the shape of the world economy could brighten if America today issues another strong employment report which is on the cards. 


Sterling rose against the U.S. dollar as markets focused on the downside of a mixed American jobs data. Upside for the pound could hinge on a meeting today by British Prime Minister Theresa May on Brexit. The prime minister is increasingly running low on time to get her divided cabinet to unite behind her Brexit strategy with less than 9 months until the U.K. is schedule to vacate the EU in March 2019.


Selling pressure abated on the euro this week as a bullish set of factory data from Germany suggested the bloc’s biggest economy was bouncing back after a slow start to the year. As a result, the euro climbed to three-week highs. Tentative signs of a cooling in U.S.-EU trade tensions added to the euro’s improved bias. Upside for the euro is perceived to be capped by the ECB’s dovish outlook as the central bank doesn’t expected to raise interest rates from zero until after next summer.


Canada’s dollar hit three-week highs only to seesaw after a double shot of northern data. The job market impressed as hiring bounced back strongly with an increase of 31,800 jobs in June compared to forecasts of 24,000. Unemployment unexpectedly rose to 6% from a four-decade low of 5.8%. The news on trade was less heartening and highlighted a vulnerability for an economy that depends on exports as a leading growth engine. Canada logged a bigger than expected trade deficit of C$2.77 billion in May, above forecasts of C$2.05 billion. Strong hiring coupled with a notable 3.5% jump in wage growth suggested a greater chance of the Bank of Canada raising its key interest rate to 1.50% from 1.25% on July 11 which is loonie-positive.


The dollar moderated as the market focused on the downside of a mixed jobs report. On the bright side, the U.S. added a robust amount of jobs in June when it netted 213,000 – above forecasts of 195,000. Wage growth underwhelmed by holding steady at an annual rate of 2.7% versus forecast of a modest uptick. Unemployment unexpectedly rose to 4% from an 18-year low of 3.8% but for good reason as the strong job market enticed more people to wade back into the labor market to seek employment. The absence of faster wage growth could lead the market to rethink the Fed raising rates two more times this year, a scenario that could leave the dollar at risk of further selling pressure over the short run.

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