So we’ve been talking about the catalyst to take the wind out of the USD's sails, and perhaps we got that yesterday. To begin with ADP payrolls came in at 89,000 versus an expected 150,000, and later in the afternoon ISM services new orders fell from 57.5 to 51.8, highlighting a considerable dip in orders. As a result US treasury yields retreated, causing USD to weaken. Another contributor to the fall in USD was a 5% drop in crude oil, which has fallen a total of 10% since its recent peak on the 28th September. GBP was the best performer following a higher services PMI number for September.
After months of disappointing data from China and markets revising growth forecasts lower for the economy, Citibank actually raised its GDP forecast due to industrial production and a recovery in the housing market. Should this continue then we could also see risk appetite coming back into the market.
* Daily move - against G10 rates at 7:30am, 05.10.23
** Indicative rates - interbank rates at 7:30am, 05.10.23
The main event this week will be tomorrow's jobs report from the US, and in anticipation of this markets are expected to be rangebound today. The BoE decision maker panel survey this morning will provide fresh insights on inflation trends within the UK. Earlier this week we had data showing that shop price infaltion was at the lowest for a year. Further expectations of easing of inflation will discount the prospect of one final rate hike by the BoE – which we would expect to be GBP negative. US jobless claims will be viewed as another gauge of the US jobs market.
Whilst the ADP payroll number doesn’t necessarily provide a 100% accurate reading on Friday's jobs report, USD still suffered as markets continued to take profits on its 2-month rally as the number of job additions disappointed. The ISM services new orders was also disappointing, with orders now at the lowest since December 2022. Focus now falls on tomorrow's job numbers, and whether this adds to USD weakness.
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