Last week the focus was on the Jackson Hole symposium where Powell confirmed that the central bank would adjust the inflation target to an average of 2%. Powell went on to state that employment will be given greater importance in achieving goals. The central bank is now more confident that higher employment will not lead to higher inflation and the economy will be allowed potentially to run at a faster rate to boost long-term employment. The inevitable implication that interest rates will remain at very low levels for a longer period and potentially undermine the dollar. However, there was some positive news as Q2 GDP data was revised to a contraction of 31.7% from 32.9%, slightly stronger than forecast. Economic data was mixed as US durable goods orders increased but consumer confidence declined to a 6-year low.

Closer to home Sterling started the week on the back foot as following downbeat Brexit comments from the previous week. However, GBPUSD rose to fresh highs following the FOMC Chair’s comments. Despite the stress to the UK economy the Pound continues to shrug off negative data. The CBI retail sales survey dipped to -6 for August. The CBI stated that sales are forecast to decline at a faster pace in September with a reading of -17 for the expectation’s component. In the meantime, labour-market trends will be an important focus with August employment cut at the fastest pace since February 2009 and companies expect the rate of job cuts to increase further in September. The focus of the week was BoE Gov Bailey’s comments at the Jackson Hole symposium. Bailey stated that the Bank of England still has ample firepower to fight the coronavirus crisis arguing that the £200bn bond-buying operation the central bank unleashed in March had shown the value of “going big and fast” with quantitative easing.

In Europe news was mixed as there were further concerns over Euro-zone coronavirus developments with Italy recording the highest number of daily new infections for over three months and France posting fresh 4-month highs. The Euro gained some support from the German announcement of a fresh fiscal stimulus with France also set to announce plans this week.

Looking to the week ahead it is a busy calendar with data highlighting economic activity from the UK, US, EU and China. The markets will keep an eye on this to see whether the global recovery from lockdown is continuing to proceed. Of interest will be the US employment data set for release on Friday.

Monday

  • UK Bank Holiday

The market is likely to be quiet as UK is on bank holiday with a quiet day for economic data.

Tuesday

  • EZ consumer price index
  • UK net lending figures
  • US ISM manufacturing

The eurozone consumer price index is likely to largely ignored as the global economy is in far away from raising interest rates. UK mortgage approvals and net lending will be closely watched to see what the appetite for credit and lending is and whether data matches the recovery we are seeing in the UK. The focus will be on the US ISM manufacturing data as the economic activity is being monitored closely as COVID case continue to increase and the US Presidential election gathers momentum.

Wednesday

  • US ADP employment 
  • US Beige book

The US ADP employment report will be closely watched ahead of the all-important labour figures on Friday. The market often doesn’t react to this figure due to large disparity sometimes witness between this figure and the government’s numbers. However, it will still be watched to get a handle on what Friday’s number could look like. The Beige Book provides anecdotal evidence supplied by the 12 Federal Reserve banks regarding local economic conditions in their district.

Thursday

  • US Jobless claims
  • ISM Non-Manufacturing
  • BoE Gov Bailey 

US ISM non-manufacturing data will be monitored as the economic activity is being closely watched as COVID case continue to increase and the US Presidential election gathers momentum. The weekly jobless claims are due for release with the market focused to see if the increasing trend continues with a recent surge in COVID cases and ahead of the all-important Non-Farm Payrolls.

Friday

  • UK PMI Construction
  • US Non-farm payrolls
  • US unemployment rate

The focus of the week will be on the US jobs market especially with the November election fast approaching. US employment growth is expected to have slowed to circa 1,400k from 1,763k in July but the unemployment rate to fall to 9.8%.

Read our Monthly FX Forecast for a longer-term view of currency movement.

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