USD

The ADP employment data released yesterday showed private payrolls increased by 568,000 last month, marginally beating forecasts of 428,000. This will look to further cement the conditions Federal Reserve Chair Jerome Powell has stated will need to be met for the Fed to start tapering their asset purchase scheme in November. The ADP is normally used as a barometer of the main event of Friday’s Non-Farm payrolls, but in previous months the strong ADP number has not translated into a strong Non-Farm number.

Oil prices hit multi year high earlier in the day resulting in further dollar strength. The market strongly believes that an interest might have risen to counter the sharp price increases. The dollar climbed across the board on Wednesday, as surging energy prices fuelled concerns about inflation and interest rate hikes, knocking investors’ appetite for riskier assets and driving flows to safe-havens such as USD.

With oil prices hitting their highest in seven years, shares fell and government bond yields rose across the world early yesterday before reversing some of the moves later in the session.

As mentioned above, the Fed has said it is likely to begin reducing its monthly bond purchases as soon as November and then follow it up with interest rate increases, as the US Central Bank’s turn from pandemic crisis policies gains momentum.

The US payrolls report at the end of the week, which could provide clues to the Fed’s next move, remains a point of focus for investors. Friday’s Non-Farm payrolls data is expected to show continued improvement in the labour market, with a forecast of 473,000 jobs for September.

GBP

The pound continued to edge higher yesterday and this morning after previously coming under pressure from yesterday’s construction data. The data revealed the sector recovery slowed to its lowest pace in height months due to supply chain issues and labour shortages.

The pound benefited against the euro as German factory orders and retail sales both disappointed the market, which will raise further concerns about the economic health and recovery of the European bloc.

There are no UK economic data releases of note today so the ECB’s minutes out at 12.30pm will be scrutinised for clues on when the ECB could start to normalise its monetary policy. Given the backdrop for the German economy it looks unlikely we will see any move from the ECB in the near future. Therefore, the pound looks to be well supported against as the market anticipates the Bank of England to taper before the ECB.

Key announcements

12:30 – EU – ECB Monetary Policy meeting minutes
13:30 – US – Unemployment claims
13:40 – FOMC member Williams speaks