Dollar Awaits Jobs Report Amid Trade Uncertainty

The US dollar is higher against major pairs on Thursday in anticipation of a strong U.S. non-farm payrolls (NFP). The U.S. Federal Reserve kept rates unchanged on Wednesday and without a press conference there was little guidance for the markets who will have to wait until the minutes from the Federal Open Market Committee (FOMC) meeting are published in two weeks. Two more rate hikes are forecasted to the Fed Funds rate in 2018, but the economic indicators will have to validate them. The U.S. non-farm payrolls will be published on Friday, August 3 at 8:30 am EDT. Investors will be quick to scan the report for the wage growth and unemployment rate components.

• US expected to add 190,000 jobs
• US wages could have gained 0.3 percent
• Unemployment rate in the US to drop to 3.9 percent

Dollar Rises on Safe Haven Flows

The EUR/USD lost 0.62 percent on Thursday. The single currency is trading at 1.1587 as the US dollar rose as investors sought a safe haven as trade tensions once again flared up between the United States and China. The Trump administration proposed a 25 percent tariff on $200 billion Chinese goods with China expected to retaliate.

Friday’s economic data release will be highly focused on US indicators. The employment report by the Bureau of Labor Statistics will be the main attraction but geopolitics will continue to guide the market if trade war concerns do not subside.

The US stock market closed with gains across the board, with the exception of the DJI. Apple (AAPL) became the first company to break above the $1 trillion capitalization. Not unlike Brexit negotiations it is still too early to say what effect the looming trade war between the US and China will have on markets as there is still the possibility that both sides will reach an agreement.

US Commerce Secretary Wilbur Ross said on Thursday that the tariffs are thought through but a compromise is being worked on by the US President. NAFTA negotiations have advanced in recent weeks as the newly elected Mexican president has been optimistic a quick deal can be reached. Mexican Trade teams are in Washington to talk with the US Trade representative, but the US did not extend an invitation to Canada to join the meetings.

Pound Lower Despite BoE Rate Hike

The GBP/USD fell 0.84 percent on August 2. The pound is trading at 1.3015 after a Super Thursday that included a unanimous vote from the Monetary Policy Committee to raise the benchmark interest rate by 25 basis points. The decision to lift rates to 0.75 percent was heavily anticipated by the market. The currency rebounded temporarily on the announcement but quickly dropped as the press conference by BoE governor Mark Carney presented a gradual path in the future.

Governor Carney told the BBC that a rate hike a year was a good rule of thumb but questions remain on the timing of the decision. The EU divorce concerns continue to hang over the UK as Prime Minister Theresa May has not been able to find the perfect compromise between hard and soft Brexit.

The BoE elected to act now based on hard economic data than wait for the unclear outcome of the Brexit negotiations. The deadline is still 8 months away, but there is a lot of issues where not only are the UK and the EU apart, but there is no clear consensus between members of May’s cabinet.

Loonie Falls Ahead of NFP and Trade Disputes

The USD/CAD gained 0.13 percent in the last 24 hours. The currency pair is trading at 1.3026 after the US dollar rose and the loonie failed to get traction from a rebound in oil prices. West Texas Intermediate is trading at $69.54 ahead of US rig data due on Friday.

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The Bank of Canada (BoC) lifted interest rates by 25 basis points on July 11 and after a stronger than expected monthly GDP report the probability of a follow-up in 2018 has risen. Bank of Nova Scotia is forecasting 2 more rate hikes despite the uncertain outcome on NAFTA. The BoC will try to keep the gap between the Fed Funds rate and the Canadian rate as much as the economy will allow. The U.S. Federal Reserve is expected to hike in September and again in December to deliver the promised four interest rate hikes in their path to normalization.

Market events to watch this week:

Friday, August 3
4:30am GBP Services PMI
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate
10:00am USD ISM Non-Manufacturing PMI

*All times EDT