Market Commentary: US dollar backs off ahead of non-farm payrolls, oil jumps 

Market Commentary: US dollar backs off ahead of non-farm payrolls, oil jumps 

Markets: 

  • JPY leads, EUR lags 
  • WTI crude up $1.95 to $83.58 
  • US 10-year yields down 0.1 bps to 4.11% 
  • Gold down $3 to $1939 
  • S&P 500 down 0.1% 

As the session began, all eyes were on the euro following remarks from ECB’s Schnabel highlighting the deceleration of the eurozone economy. Later, DeGuindos echoed these sentiments, resulting in a downward revision of the odds for an ECB rate hike and a subsequent decline in the euro’s value. The selling activity largely concluded by the end of European trading, resulting in a drop to 1.0836, after which the market exhibited sideways movement. 

During US trading, the market response to PCE and claims data was somewhat uncertain, as the data mostly aligned with estimates. Ultimately, the influence of month-end flows may have outweighed the impact of the data, leading to some dollar selling. This sentiment could also be attributed to concerns ahead of the non-farm payrolls report (which gives valid reasons for apprehension). 

The oil market drew attention as crude prices climbed for the sixth consecutive day, further accentuated by Russia’s Novak drawing attention to an upcoming OPEC+ decision. Crude oil experienced fluctuations but ultimately rose by $2, impacting USD/CAD, which marked its third consecutive day of decline as it approached 1.3500. 

During European trading, focus shifted to Cable (GBP/USD) when BOE’s chief economist, Hew Pill, suggested that additional rate hikes might not be necessary. This initially led to some selling pressure, but the pair stabilized around 1.2670 and maintained sideways movement from there. 

Looking ahead, the upcoming day holds significance as the calendar transitions, bringing the anticipation of non-farm payrolls data. 

In the foreign exchange market, the initial response will follow a clear pattern: the US dollar will strengthen if the report surpasses expectations and weaken if it falls short, particularly against the euro and yen. However, the situation becomes more intricate in the equity market, and this complexity could eventually have an impact on the currency market. Throughout this week, negative news has surprisingly driven stock market gains as it implies the Fed won’t proceed with rate hikes. Nevertheless, this strategy might be losing momentum, given that the market’s likelihood of a September rate hike stands at 10%, and the probability for November is 45%, with no expectations beyond that point.

Author: Jacky.T 

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