A firm US Dollar and a resilient US economy

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The US Dollar remains firm, and on Friday, it will attempt to defend or extend the weekly gains. During the Asian session, Japan will release Q2 GDP data. Later in the day, the highlight will be the Canadian jobs report.

Here is what you need to know on Friday, September 8:

Wall Street finished mixed, with the Dow Jones gaining 0.17% and the Nasdaq falling 0.89%. Caution still prevails in the markets. US Treasury yields jumped initially after the release of US economic data but later pulled back. The US 10-year yield settled around 4.25%.

Data released in the US on Thursday revealed a decline in Initial Jobless Claims to 216K and Continuing Claims to 1.679 million, surpassing market estimates. Following the report, the US Dollar Index reached a peak of 105.15, its highest level since March, before retracing slightly to 105.05. Economic figures bolster the “higher for longer” interest rates narrative and provide support for the US Dollar.

EUR/USD posted its lowest daily close in three months, just below 1.0700. The Euro appears vulnerable, moving with a clear downward bias and showing no signs of stabilization. The final release of Germany’s Consumer Price Index is upcoming, and no surprises are anticipated. Looking ahead, the European Central Bank (ECB) will hold its monetary policy meeting next week, and there is currently no clear consensus on what actions it may take regarding interest rates.

Analysts at Danske Bank on ECB meeting:

The worsened economic outlook and markets turning more dovish, we expect the ECB to deliver a 25bp hike at the September meeting, marking a peak in the deposit rate of 4.00%. After all, the ECB has an inflation mandate rather than facilitating economic activity.

USD/JPY pulled back modestly after reaching fresh multi-month highs just below 148.00. The reversal in US yields provided support to the Japanese Yen on Thursday. Japan is set to release Q2 GDP growth data on Friday.
The British Pound registered its fifth daily decline out of the last six days, against the US Dollar. GBP/USD hit a three-month low at 1.2445,  close to the 200-day Simple Moving Average (1.2425), before paring losses and rising to 1.2470.

Despite signs of stabilization in China’s trade data, the Australian Dollar continues to face pressure from commodity prices and a stronger US Dollar. AUD/USD remains range-bound between 0.6360 and 0.6400, near monthly lows, with a downside bias.

The Canadian Dollar underperformed during the Americas session, despite upbeat Building Permits and Ivey PMI data. Following the Bank of Canada’s decision to keep interest rates unchanged at 5%, Governor Macklem explained the decision and mentioned that there is little downward momentum in underlying inflation. USD/CAD rose to its highest level since March and is eyeing the 1.3700 area. Canada will release the August employment report on Friday.

TD Securities on Canadian jobs data: 

We look for the economy to add 20k jobs in August, slightly below the 6m trend and well below levels required to keep up with population growth, with a partial rebound in construction helping to drive the headline print. A 20k print would leave the UE rate stable at 5.5%, while softer wage growth should give the report a dovish tone even if jobs print slightly above consensus.