Currencies Digest NFP Release as Markets Look Ahead

On July 3, the U.S. dollar, euro and pound mirrored markets’ initial reaction to the latest U.S. nonfarm payrolls report for a new gauge of labor-market strength and wage trends in the U.S. The nonfarm report gave markets insights into the Fed’s policy stance, which is weighed against ongoing core inflation; this will influence relative demand for the greenback, as markets price in Fed easing.

The euro struggles against growth divergences in the euro zone and the ECB’s quest for inflation containment. Varying national fiscal stances and inflation rates will drive the single currency. Sterling is challenged by the services inflation risks for the Bank of England versus weaker growth signals and domestic fiscal policy and labor market trends, both factors.

In the foreseeable future, inflation numbers, retail sales data and Fed and ECB comments will put these scenarios to the test. In a larger sense, economic fundamentals are differentiating the three currencies in terms of inflation, growth resilience and fiscal positions, creating two-sided risk.

Current account positions and capital inflows and outflows will continue to be a determinant for exchange rate movement.

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