Powell as new Fed chairman, pound down after interest rate hike; markets are waiting for non-farm payrolls today
The Dollar Index (USD/DXY) eased in volatile trade after the Republican Party revealed details of their tax plan. President Trump nominated Jerome Powell to lead the Fed when Janet Yellen retires early next year. Market reaction was muted to the announcement. Sterling sank against the US Dollar and the Euro after the Bank of England raised its Official Bank Rate for the first time in a decade. In data released yesterday:
Australia’s Trade Surplus in October rose to AUD 1.75 billion, higher than the AUD 1.42 billion forecast. Australian Building Approvals climbed 1.5%, much better than the 0.9% fall that analysts expected.
UK October Construction PMI rose to 50.8 from 48.1 and a forecast of 48.3
The Bank of England raised it’s Official Bank Rate to 0.5% from 0.25%, which was expected. The MPC Facility Vote was 7-2 in favor of the hike.
US Weekly Jobless Claims improved to 229,000 from 234,000.
Wall Street stocks were mostly up with the DOW up 0.35% while the S&P 500 finished flat. The NASDAQ lost 0.2%
Global Treasury prices rose and yields fell. The yield on the US Ten Year Bond slipped 2 basis points to 2.35%. The UK Ten Year Gilt yielded 1.26%, down 8 basis points from yesterday. Germany’s Ten Year Bund yield closed flat at 0.37%.
USD/DXY – slips 0.1% to 94.70 from 94.784 yesterday
EUR/USD – rallies to 1.1662 (1.1623 yesterday)
GBP/USD – sinks, finishing at 1.3058 from 1.3245 in choppy trade
USD/JPY – slips to close mildly lower at 114.04 from 114.12.
AUD/USD – climbs 0.5% to 0.7715 (0.7672 yesterday)
Outlook: The Dollar eased after traders viewed the Republican tax reform plan as insufficient to impact the economy. The proposal called for cutting the corporate tax rate to 20% (from 35%) while imposing up to 12% tariff on the accumulated earnings of multinationals. The Bank of England hiked interest rates for the first time in a decade. The MPC voted 7-2 in favor of the hike. There was no change to the asset purchase program. The BOE projected “very gradual” further increases over the next 3 years. Sterling sank to an overnight low of 1.3043 from 1.3245 following the announcement. The Pound was also lower against the Euro. EUR/GBP soared 1.8% to 0.8927 (0.8778 yesterday). The announcement that Jerome Powell will take over the Federal Reserve Chair should not change the outlook for monetary policy.
Events and economic data due today:
Australian September Retail Sales (GMT 12.30 am, Nov 3/Local Time 11.30 pm, Nov 3) forecast: 0.4% from -0.6%
China October Caixin Services PMI (GMT 1.45 am, Nov3/Local Time 12.45 pm, Nov 3) forecast: 508 from 50.6
UK October Services PMI (GMT 9.30 am, Nov3/Local Time 8.30 pm, Nov 3) forecast: 53.3 from 53.6
Canada Employment Change and Unemployment Rate (GMT 12.30 pm, Nov 3/Local Time 11.30 pm, Nov 3) forecast for Employment Change: 15,300 from 10,000; forecast for Unemployment Rate: 6.2% from 6.2%
US October Non-Farm Employment Change, Unemployment Rate, and Average Hourly Earnings and Trade Balance (GMT 12.30 pm, Nov3/Local Time 11.30 pm, Nov 3) forecast for Employment Change: 312,000 from -33,000; forecast for Unemployment Rate 4.2% from 4.2%; forecast for Average Hourly Earnings: 0.2% from 0.5%, annual forecast: 2.7% from 2.9%; forecast for US Trade Balance: -USD 43.3 billion from -USD 42.4 billion
US ISM Non-Manufacturing PMI (GMT 2 pm, Nov 3/Local Time 1 am, Nov 4) forecast: 58.5 from 59.8
Trading View: Welcome to Payrolls Friday which is the next catalyst for any big moves. Trading yesterday was volatile in almost all currencies and we can expect the same today. The position for the Fed’s top job is out of the way. There should be no change in US monetary policy, which is a Dollar supportive factor. The market’s disappointment with the Republican tax plan which is unlikely to gather much support from Congress is a headwind for the Greenback. Today the immediate focus is on the Payrolls. The median forecast is for a huge gain in Jobs Creation between 310,000 to 360,000 in October. This is due to the impact of the recent hurricanes on September’s number which fell 33,000. If we get a number anything less than +300,000 we could see Dollar sell-off. A Jobs Creation number of 350,000 or higher will see a higher Greenback. Average Hourly Earnings are projected to fall to 0.2% from 0.5%.
EUR/USD – rallied to an overnight high of 1.1688 on a combination of Dollar and Sterling weakness. EUR/GBP soared to close up by 1.7%. EUR/USD has immediate resistance at 1.1670/80 and then at 1.1700. Immediate support lies at 1.1610/15 and then at 1.1580. The Euro’s moves will be determined by the broader Dollar direction. Likely range 1.1620-1.1670
GBP/USD – Markets viewed the BOE rate hike as a dovish one given their projected “very gradual” approach to further increases over the next 3 years. GBP/USD has immediate resistance at 1.3090-1.3100. Immediate support can be found at 1.3040 (overnight low of 1.3043). While the Pound should remain heavy against the Dollar, the support at 1.3000 is strong and should hold. Likely range 1.3030-1.3130.
AUD/USD – The Aussie rallied against the Dollar on better-than-forecast Trade and Building Approvals data. Australian Retail Sales are due today and anything less than the forecast improvement to 0.4% from the previous -0.6% could see the Aussie sold off. AUD/USD saw an overnight high of 0.7730 before settling at 0.7715 currently. Immediate resistance remains at the 0.7730 level. There is immediate support found at 0.7700 and 0.7685. Likely range until the US payrolls data is 0.7680-0.7730.
USD/JPY – closed little-changed at 114.05 from 114.12 yesterday. Overnight high for the Dollar was at 114.22. The US Ten year yield slipped 2 basis points (2.35%) while Japan’s Ten Year JGB yield ended down 1 basis point (0.04%).USD/JPY has immediate resistance at 114.20/30 and then at 114.50. Immediate support can be found at 113.90 and then 113.60. Likely range today 113.70-114.20.
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