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Greenback on a roll following strong data and hawkish Fed comments

By Alex Edwards

GBP/USD fell on Thursday as the greenback strengthened against a range of currencies. The pair slipped below 1.30 in the early afternoon in London, and settled as Theresa May delivered her closing speech at the Tory conference. She said that Britain was not afraid to leave the EU without a deal but that a no deal would be a bad outcome for both the UK and EU. She went on to say that her proposal was for a free trade deal, providing for frictionless trade. It was all relatively positive news for the pound and GBP/USD pushed back above 1.30. The recovery in GBP/USD came despite the release of some stronger than expected US data by way of ISM Non-Manufacturing PMI and ADP Non-Farm Employment and some fairly hawkish comments from the Fed’s Powell, albeit Powell’s comments came much later in the day.

The combination of strong US data and hawkish Fed comments then did eventually take a toll and GBP/USD fell back below 1.30, but it has so far found good support at 1.2950. Although it’s a quiet day today in terms of data, investors will have half an eye on tomorrow’s US Non-Farm Payrolls and average earnings data, both very important sets of data.

The USD is on a roll, still. US data, released yesterday, was much stronger than expected; ADP Non-Farm Employment printed at 230k vs. forecasts for 185k, whilst ISM Non-Manufacturing PMI came in at 61.6 vs. expectations for an index reading of 58.0. Later that evening, Fed Chair Jerome Powell gave a speech and said that the central bank had a “remarkably positive outlook” for the US economy. In reference to employment and inflation he said “while these two top-line statistics do not always present an accurate picture of overall economic conditions, a wide range of data on jobs and prices supports a positive view…….in addition, many forecasters are predicting that these favorable conditions are likely to continue.”

The dollar is stronger as a result, and without a lot of data due today from the US, we may see some profit taking ahead of the much anticipated US Non-Farm Payrolls data tomorrow.

The euro broke key technical supports through trade on Wednesday falling below 1.15 to touch intraday lows at 1.1471. Renewed US dollar support on the back of sustained FOMC and Federal Reserve hawkish commentary coupled with escalating concerns surrounding Italy’s debt, fiscal future and ongoing relationship with the Eurozone have forced a persistent downward correction and heightened market nervousness.

Having broken 1.15 markets will be keenly attuned to any consolidation in the downward correction. A sustained move below 1.15 could signal a deeper depreciation is evident and see the combined unit move nearer 2018 lows and 1.1340. Attentions remains squarely fixed on ongoing Italian economic and political developments for immediate short term direction with broader guidance stemming from the burgeoning gap between US and Eurozone growth.

It’s been a tough few sessions for the aussie dollar, having fallen to new multi-year lows against the greenback. The latest catalyst for the price action was the release of strong US macroeconomic data, which caused a spike in US treasury yields and propelled the greenback higher. The AUD and NZD were rendered the worst performers amongst their G10 peers on the day yesterday, both falling 1.2%.

With little left on the domestic data front for the rest of the week, attention now turns to US employment data on Friday.

The CAD retreated on Wednesday. In the absence of any domestic data, the loonie looked to its counterpart south of the border for direction. The greenback enjoyed a strong showing to close out the day with a number of announcements that bolstered the USD.

The greenback was well supported on Wednesday with a number of releases surprising the market. Initially the ISM non-manufacturing report increased to 61.6, its highest level since 1997. The employment report that followed also beat expectations, raising expectations for the payroll report due out tomorrow. Powell’s comments then had an impact, too.

NZD/USD has gone the same way as most other currencies - and commodity currencies – vs. the USD, and for the same reasons. Markets ignored local data - ANZ Commodity Price index, which dropped for the fourth consecutive month down 1.8% in September, pushing annual growth further into negative territory, at -3.0% year-on-year.