The record breaking moves in the S&P 500 have drawn investors into US assets and in turn the USD. The greenback extended its gains against all of the major currencies on Wednesday with EUR and AUD experiencing the steepest declines.
Non-farm payrolls will be released on Friday and ADP is an important barometer of labor market health. According to the private payroll provider, US companies added 428,000 workers last month, about half the forecasted amount. When the number was initially released investors reacted by selling USD, but the rally resumed quickly as buyers returned.
Even if non-manufacturing ISM report shows service sector activity slowing and employment gains weakening, the general sentiment in the market is that the rally in stocks signal a more durable recovery that should lead to lower unemployment. While there are a lot of problems with this theory including the possibility of a second wave as schools re-open, sheer optimism is the main reason why investors are buying US stocks and the greenback. According to Beige Book released by the Fed, economic gains were modest. Business contacts had mixed expectations for staffing in the months ahead with manufacturers expecting staff increases and the service sector anticipating the need for reductions.
The reversal in EUR gained traction with the single currency headed for a test of 1.18 versus the USD. Eurozone retail sales are scheduled for release, it could miss expectations. Signs of the Eurozone recovery losing momentum are worrying investors and with the single currency rising to heady levels, there’s a strong sense of profit taking especially after ECB Chief Economist Lane said EUR/USD rate would matters.
Last but certainly not least, GBP followed EUR lower. As it was said at the start of the week, there’s very little on the UK calendar but the data that one has seen so far has been better with house prices following mortgage approvals higher. Still GBP is taking its cue from the market’s appetite for USD.
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