Forex Today – Asian Session: A Cautionary Tone Ahead of NFPs

It’s NFP day. During the Asian session, the Reserve Bank of Australia will publish its monetary policy, after the break on Tuesday. In European time, Germany will report factory orders and Eurostat will publish retail sales data. Later, Canada and the United States will report on employment.

Here’s what to know on Friday, August 4:

We will report on employment in the United States. Nonfarm payrolls are expected to have increased by 200,000 in July, down from 209,000 in June. The unemployment rate is expected to remain at 3.6% and median hourly earnings are expected to increase at an annual rate of 4.2%. These figures will close out a packed week of employment numbers that have so far shown little signs of softening. Reporting of NFPs will be closely monitored and is expected to cause volatility in the markets.

According to data released Thursday in the United States, initial claims for jobless benefits rose to 227,000 in the week ending July 29, as expected. Second quarter unit labor costs rose at a rate of 1.6%, below the 2.6% expected, and the first quarter was revised from 4.2% to 3.3%. Factory orders rose 2.3% in June, in line with expectations, while the ISM Services PMI dipped to 52.7 from 53.9, below the estimate of 53.

Wells Fargo analysts weigh in on US productivity:

Productivity growth rebounded strongly in the second quarter, beating expectations and increasing by 3.7%. In the past year, output per hour worked has increased by 1.3%, the first positive one-year advance since the end of 2021. The improving productivity trend, coupled with slowing nominal wage growth, points to that the inflationary pressures in the labor market begin to subside.

US economic numbers had limited impact on the US dollar as caution prevailed across markets. US stocks ended slightly lower, and the 10-year US Treasury yield jumped to 4.17%, the highest since November. The US stock market maintains its bearish trend, following the downgrade of Fitch’s credit rating, as investors seem to be taking profits after the recovery started on July 10.

The Dollar Index made new weekly highs but later pulled back, ending a five-day positive streak, trading around 102.50. The EUR/USD pair hit monthly lows below 1.0950, but then bounced and ended up sideways near 1.0950. On Friday Germany will report on Factory Orders and the Eurozone will publish retail sales data.

The Bank of Japan announced a second unscheduled round of bond buying to limit the rise in Japanese government bond yields. USD/JPY hit a monthly high just below 144.00 before turning lower and ending around 142.50.

As expected, the Bank of England (BoE) raised its benchmark rate by 25 basis points to 5.25%, the highest level in 15 years. In the Monetary Policy Committee there was a three-way split: two members voted in favor of a 50 basis point hike and one member was in favor of making no changes. It is not clear what the BOE will do next, and there will be two monthly reports on inflation before the September meeting. Pound weakened moderately after the decision, with GBP/USD bottoming at 1.2620, the lowest level in almost five weeks, before bouncing higher above 1.2700.

TD Valores Bursátiles analysts on the BOE:

The language around the hike suggests that the Monetary Policy Committee is preparing to hit a terminal rate soon; We continue to expect increases of 25 basis points in both September and November, but the probability of a November increase, while still our base case, is now lower.

The AUD/USD pair finished moderately higher after the sharp decline of the previous two days. The trend is still down, but the pair managed to stay above 0.6500. The Reserve Bank of Australia (RBA) will publish its Monetary Policy publication, which will include new macroeconomic forecasts.

USD/CAD rose for the third day in a row, but the bullish momentum has moderated. The pair failed to break above the June highs and fell back towards 1.3350. Canada will report employment data on Friday, with employment change expected to be positive at 21,100, following an increase of 59,900 in June; and the unemployment rate is expected to rise modestly from 5.4% to 5.5%.

USD/CHF pulled back after five consecutive days of gains and fell as low as 0.8730. Switzerland reported a decline in the annual Consumer Price Index (CPI) to 1.6%, the lowest since January 2022.