After nonfarm payroll numbers on Friday came in lower than expected at 209,000, we saw the USD sell off into the end of the week. However, it's worth noting that wages came in higher than expected suggesting that the job market remains too tight for the Fed, and the shortfall on the number will unlikely deter the Fed from hiking interest rates later this month. GBPUSD hit the June high before coming off.
Over the weekend Governor Bailey spoke, dismissing the claim that the inflation target needs to be higher than 2%, and added that the Bank has some leeway to lengthen its horizon to bring inflation from the usual two years to three years if necessary – some hesitancy perhaps in the need to hike interest rates all the way to 6.50%?
Inflation in China continues to decline, with CPI coming in at 0.0% and producer price inflation now at -5.4%.
* Daily move - against G10 rates at 7:30am, 10.07.23
** Indicative rates - interbank rates at 7:30am, 10.07.23
Busy week ahead with UK job and growth numbers, US inflation numbers, Bank of Canada interest rate decision, and the release of the minutes from the latest ECB meeting. UK wages will be key with regards to what kind of interest rate hike we see in August. A survey from a recent KPMG survey suggested that supply of permanent and temporary workers have increased at the highest rates since December 2020, and along with that there are signs that salaries for starters and temporary workers have weakened to their slowest in over two years. Markets continue to price a high chance of a 0.50% rate hike, so any undershoot in the wage numbers and we could see this pricing ease off, taking GBP lower with it.
US inflation will be a key print on Wednesday and any uptick in prices will have a positive effect for USD.
As well as these key data points, we have speakers from the ECB, BoE and Fed throughout the week.
UK wages will be a key data point for GBP this week, and whether the Bank of England will conduct another 0.50% rate hike in August. Wages remain too high at 6.5% and markets are expecting another rise to 6.8% tomorrow morning, which would be the highest since September 2021. Worth noting that a recent survey by KPMG suggests there are signs the job market could be softening, with supply of permanent and temporary workers at their highest since December 2020, slowing starting salaries to their slowest in over two years.
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