The global sell-off of equities spilled over into the FX market at the start of last week, as the PBoC intervened to try and help spur growth in China. This saw a flight to safety into the Euro, the Yen and the Swiss Franc and as a result the Greenback weakened to its lowest level since January. As markets began to settle, more action from China’s central bank took place on Tuesday, decreasing the reserve requirement ratio and also cutting its main interest rate down to 4.6%. The move was to slowdown the sell-off in the stock markets seen on what now is called ‘Black Monday’. As a result, this saw the Dollar regain the losses seen throughout the previous day.
From the US, the durable goods figure saw a better than expected reading and prompted a surge in the Dollar. With the gauge coming out at a bullish 0.6%, way above the 0.3% forecast on Wednesday, this was followed-up by the second reading of Q2 GDP which came out at a very strong 3.7%. This shows that as the US heads into the second half of the year, their economic growth is on the rise and adds to the September rate hike speculation.
With the UK closed, data was light as no high-tier data was released. From the Eurozone the yearly inflation figure was posted and came out in-line with the market consensus at 0.2%, as did the core figure which remained at 1.0%. However, inflation continues to remain low as energy prices are still dragging down prices and is likely to continue.
Overnight all eyes were fixed on China as the manufacturing PMI was released and keeping with the downtrend it showed that the slowdown was continuing. The manufacturing sector slowed in August to 47.3, the lowest reading since March 2009 and showing that the world’s second largest economy is fast losing momentum.
This morning we will see the UK Manufacturing PMI released, with the US ISM Manufacturing PMI being seeing later this afternoon. From the single currency zone the unemployment rate is posted.
Markets will be looking at the release of the US ADP Non-Farm Employment figure as to try and get an idea of where the actual figure on Friday may be seen. As interest rates are likely to be raised by the US first, markets are still uncertain as to when this could happen and all high-tier data from the US will help try to gauge when this could be. From the UK the Construction PMI is expected to slightly increase from previous months reading.
With high-tier data from the UK in the form of the Services PMI as well as high-tier data from across the Atlantic, we could see some volatility for the Pound and the Dollar, however the event risk of the day comes from the Eurozone. The head of the ECB Mario Draghi is speaking at a conference about QE and the bank rate. Depending on Draghi’s comments this could bolster the Euro or likewise weaken it.
The US will be in the spotlight with further insight into how well the labor market is performing. The all important Non-Farm figure is set to remain above the 200k mark, which if seen yet again will only add weight to an early rate rise and in-turn strengthen the Greenback. Also if the unemployment rate falls as expected, the markets will expect to see a rise in September.