GBP: The manufacturing PMI provided a modest lift to sterling on Monday and the currency will be watching for a repeat on the services release today, which is expected to rise from 52.9 to 53.1.
USD: The market expects to see the ADP numbers to record a 165k gain, after 119k in April. These are going to be even more important than usual in shaping expectations for Friday’s employment report. A stronger showing will benefit the dollar, given that the labour market is pivotal in determining when the Fed pulls back from quantitative easing.
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There are three reasons why the market will pay strong attention to the ADP numbers from the US today.
Firstly, the correlation between the ADP numbers and private payrolls (12-month rolling) is at the highest level since the middle of 2009. This follows a period two years ago where it was a fairly unreliable predictor of the following payrolls report.
Secondly, the Fed has stated that the labour market is the key parameter in determining when it will start to pull-back from its quantitative easing program. It wants to see a sustainable recovery in the labour market, which has dragged behind the recovery in the economy.
Thirdly, although it was partly down to positioning, Monday showed that the dollar is more sensitive to the ebb and flow of economic data right now, in contrast to last month when it managed to shake off weaker than expected data on the perception that the Fed were becoming more vocal on the prospect for a ‘tapering’ of the pace of monthly bond purchases.
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JPY: Some disappointment being registered in Japan, as PM Abe released the last ‘arrow’ in his bid to revive the economy. But the structural reforms to the economy are not to begin until later in the year and after the upper house elections which are due to take place next month. The Nikkei is down nearly 4%, whilst USDJPY pushed down to the 99.50 area as a result. It seems that Abenomics is losing some of its shine.
AUD: GDP data showed the economy growing 0.6% in Q1, a touch softer than expected but matching the pace seen in Q4 2012. The Aussie saw a slightly choppy Asia session, with initial fall regained, to be followed by a fresh push to the 0.96 level as European markets opened.
EUR: The euro ignoring the relatively muted developments in peripheral bond markets and focusing more on the ECB meeting tomorrow, where the main focus is the potential for a move to a negative deposit rate. This is still not seen as the most likely scenario, but would be euro negative if announced.
GBP: Sterling walking slowly into the Bank of England meeting, which starts today and results announced tomorrow, the last with King as Governor. Cable has held steady so far this week, with EURGBP also holding within the recent range.
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