The US dollar received a much needed fresh boost yesterday amid the release of better-than-expected data from the world’s largest economy. Firstly, the second print on the second quarter GDP was revised to 3%q/q (annualised) from 2.6% first estimate amid a substantial upside revision to customer spending and stronger business investment. Personal consumption edged up to 3.3%q/q (annualised) from 3%.
In the jobs market, the employment report released by ADP saw a sharp rise in payrolls in August. Us companies added 237,000 jobs in August (versus 189,000 estimated), while previous month’s reading was upwardly revised to 201,000 from 178,000. It does bode well for Friday’s NFPs!
The greenback extended gains against all G10 currencies yesterday. The worst performer was the New Zealand dollar that fell 1.35% with NZD/USD on its way to test its 200dma that currently stands at $0.7130. The Canadian dollar also suffered a small sell-off with USD/CAD climbing as high as 1.2663.
The show will go on today as a fresh batch of key data is due for release. Personal income and spending, which are both expected to have improved in July (+0.3%m/m and +0.4%m/m respectively) will be published this afternoon. Then the Fed’s favourite measure of inflation, core personal consumption expenditures, should have eased further in July as economists expect a reading of 1.4%y/y. Finally, July’s NFPs (180k exp and 205k prior), together with the complete jobs report, will be published on Friday.
The mood is slowly starting to shift in favour of the USD, finally. Therefore it is reasonable to expect the greenback to extend gains rapidly, especially should the US economy continue to surprise investors in a good way. After tumbling more 1.50% yesterday, EUR/USD takes a breather at around 1.1890. Even though we maintain our bearish on the pair, a negative surprise in data this afternoon could nip the USD recovery in the bud. Indeed, investors will remain highly sensitive to hard data ahead of the next FOMC meeting.
By Arnaud Masset