The euro soared versus the US dollar in the previous session, before paring some of those gains. The euro US dollar exchange rate rallied to a high of US $1.10 before easing back to close the session at US$1.0959, a gain of just 0.2% on the day. The pair is advancing in early trade on Friday.
The euro trended higher in the previous session thanks to encouraging retail sales data for the bloc. Eurozone retail sales increased 0.3% month on month in September, up from the -0.6% decline in August. On an annual basis retail sale increased 2.1%. The euro cheered the data that suggested that the manufacturing slump wasn’t obviously spilling over into the consumer sector.
Today there is no eurozone data, so investors will focus on the trade situation with the US. Any upside in the euro could be limited following comments from the German Foreign Minister Maas who insisted that the EU will respond to the trade tariffs applied by the US. The EU will probably impose tariffs as well.
NFP In Focus
The dollar dropped sharply lower in the previous session following the release of the US ISM non-manufacturing (service) sector data. The September index dropped to 52.6 in the previous session, down significantly from August’s 56.4 points. Whilst September’s reading showed that the service sector was still expanding, it also showed that the manufacturing slump was bleeding into the dominant service sector. The weak data raised fears of a recession in the US.
Today investors will be looking ahead to the US jobs report, the non-farm payroll. This is the most highly anticipated macroeconomic release of the month. Both investors and the Federal Reserve use this data to assess the health of the US labour force and more broadly the US economy.
Analysts are predicting that 140,000 new jobs were created in the US in September. They also forecast that US average wages increased by 0.3%. Should either figure fail to live up to market expectations then the dollar could fall sharply lower.
|How does the non-farm payroll (NFP) affect the US dollar?|
|It works like this, when there is low unemployment and high job creation, the demand for workers increases. As demand for workers goes up, wages for those workers also go up. Which means the workers are now taking home more money to spend on cars, houses or in the shops. As a result, demand for goods and services also increase, pushing the prices of the goods and services higher. That’s also known as inflation. When inflation moves higher, central banks are more likely to raise interest rates, which then pushes up the currency’s worth.|
Data this week has been poor bolstering fears of a US recession. Another weak reading and investors will assume another interest rate cut from the Federal Reserve will happen sooner rather than later.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 EUR = 1.12829 USD
Here, €1 is equivalent to approximately $1.13. This specifically measures the euro’s worth against the dollar. If the U.S. dollar amount increases in this pairing, it’s positive for the euro.
Or, if you were looking at it the other way around:
1 USD = 0.88789 EUR
In this example, $1 is equivalent to approximately €0.89. This measures the U.S. dollar’s worth versus the euro. If the euro number gets larger, it’s good news for the dollar.