The US dollar index rose to its strongest level in over two months, while short-dated US Treasury yields climbed to a nine-year high, after data inside the September Non-farm payrolls job report showed the largest gain in US wages since December 2016, further boosting hopes on an interest rate hike from the Federal Reserve this year.
Average US hourly earnings data showed an increase of 0.5% in September, after rising 0.2% in August. Annual increases in wages climbed to 2.9%, which was better than the 2.7% in August. Annual wage growth of at least 3.0% is needed to raise inflation to the Fed’s 2% target.
The headline US Non-farm payrolls jobs number fell into negative territory for the first time in seven years, as hurricanes Harvey and Irma left US workers temporarily unemployed, while firms delayed hiring. The Labour Department said on Friday nonfarm payrolls decreased by 33,000 jobs last month, which was much worse than 90,000 forecasted, amid a record drop in employment in the leisure and hospitality sector. Statistics showed the drop in US payrolls was the first since September 2010, however, hurricanes Harvey and Irma did not have an impact on the US unemployment rate, which fell two-tenths of a percentage point to 4.2%, marking the lowest level since February 2001.
The US dollar index continued its advance above the 94.00 mark after Friday’s job report, after breaking above its 200-week moving average towards the end of September. Impressive ISM manufacturing and ISM Non-manufacturing data last week has also helped to underpin the bullish trading sentiment shift seen in the greenback.
The British pound fell below key technical support against the US dollar and the euro, as a mix of poor economic data, Brexit deadlock and home-grown political uncertainty weighed on the British currency. Speculation has started to mount that UK Prime Minister Theresa May could soon be ousted as leader from the UK Conservative party, after a disastrous party conference, with growing calls from former-party members for her resignation, and new leadership.
Poor UK economic data also weighed on the pound, with the UK Services and Manufacturing PMI’s both missing market expectation. Sterling closed last week below the 1.3000 level, while the EUR/GBP soared back towards the 0.8000 mark.
Further political uncertainty in Spain also weighed on the single currency last week, with financial markets braced for more turbulence this week. Spanish stock markets and the euro have started to take note, as no-clear resolution remains insight between Catalan pro-independence leaders and the Spanish government.
Last week the EURUSD pair slipped below its key 200-week moving average, dropping to an eight-week low to 1.1669. Going forward, the 1.1710 level, which marks the pair’s 2015 trading peak, remains a key level for euro traders.
The Australian dollar’s sharp fall against the US dollar faces a key battle with the $0.7700 support level this week. Last week the AUD/USD pair dropped below the $0.7800 level, after a dovish policy statement from RBA Governor Phillip Lowe, and disastrous retail sales figures.
The Reserve Bank of Australia Governor warned of the adverse effects that the strong Australian dollar was having on the domestic economy. Data also showed retail sales falling the most in seven years, dropping -0.6 per cent in August, and 0.2 per cent in July, dashing hopes of a strong recovery in spending through the second quarter.
We see the return of Chinese financial markets this week, after the Golden Week Holiday, with the release of PMI services data and key September import and export figures from the Chinese economy.
The high-impact calendar for the United States features key Producer price and Consumer price inflation data and US retail sales numbers for the month of September.