It’s Nonfarm Friday, Bringing the USD in Focus, with one eye on GBP

We saw the Dollar slide on Thursday, following a string of labour market numbers that pointed to an easing in the pace of hiring last month, with the all-important service sector delivering a blow, the ISM non-manufacturing employment index indicating a slower pace of hiring, with the June ADP figures also coming in well below expectations.

The ADP numbers were in contrast to the ISM private sector surveys, which had reported a pickup in the pace of hiring across the goods producing sector, whilst reporting a slowdown in the service sector, which certainly adds to the uncertainty ahead of this afternoon’s figures, ADP and government numbers having diverged on numerous occasions in recent times.

A fear factor has entered the markets ahead of this afternoon’s government nonfarm payroll figures, a weak set of numbers undermining the FED’s view that a tightening labour market will inevitably drive wage growth, with reports of a lack of skilled labour having done its rounds in certain sectors.

The FED and the markets may be able to stomach the odd weak month from a payroll perspective, but it does suggest that wage growth may well remain tepid over the near-term, current labour market conditions having failed to drive wage growth and inflation.

Despite the negative sentiment from Thursday’s figures and a bounce in German industrial production in May, the Dollar Spot Index was up 0.12% at 95.921 at the time of the report, though appetite for the Dollar is not just down to the numbers, but the possibility of U.S military action on North Korea, Trump having talked of a possible severe response to North Korea’s attempts to develop ICBM’s that can reach U.S shores.

Barring any actual action ahead of the weekend, it’s going to boil down to the numbers this afternoon and, while nonfarm payrolls will need to at least meet a forecasted 180K increase for the month, May figures will need to see little downward revision. Nonfarm figures may ultimately not be the main area of focus, if the numbers are relatively decent, wage growth now the key consideration and even more so with the U.S unemployment rate sitting at 4.3%, based on May figures.

While the markets will be largely focused on the Dollar, there’s a heavy set of stats scheduled for release across the pond, with macroeconomic data out of the UK including May’s industrial and manufacturing production figures, trade data and the NIESR GDP Estimate for the rolling quarter.

Focus will be on trade figures and manufacturing production, the pound having held up pretty well considering the weak private sector PMI figure released through the week.

To round off the day, BoE Governor Carney is also scheduled to speak this afternoon, which will always need attention, the markets likely to want to hear Carney maintain his new found hawkishness ahead of the next MPC monetary policy decision.

The data out of the UK have mixed forecasts, though the more relevant manufacturing production forecast is sterling positive, with the data out of the U.S also forecasted to be positive for the Dollar, but there has been plenty of disappointment in recent months on the labour market numbers, so it’s all to play for, positive numbers needed to support the more hawkish September start to the FED’s balance sheet sell-down.

At the time of the report, the cable was down 0.14% at $1.29527, with direction in the hands of the stats and Carney, while the Dollar may struggle ahead of the numbers.