London RationalFX

RationalFX: Sterling starting to gain traction on the Dollar

RationalFX: The pound got to close to a two week high against the dollar as it benefitted from flows out of the safe-haven currency and back into riskier assets.

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Sterling is likely to find its direction from other currency data releases as there is little UK data out for the rest of the week. The gains however will likely be limited as the market waits on the upcoming non-farm payrolls jobs report this Friday which will give another clear indication on the US economic recovery from the pandemic.

Yesterday we had US ISM manufacturing that surprisingly grew amid strong order growth. Activity in the manufacturing sector grew for the fifteenth consecutive month with a reading of 59.9 percent which is an increase of 0.4 percent from a reading of 59.5 percent.

The only other major US data release was the ADP non-farm employment change which increased by 374,000 jobs from July to August. The report indicated far weaker growth in private sector jobs than expected. The pandemic has disjointed the labour market dynamics, creating worker shortages even as 8.7 million people are officially unemployed. There were a record 10.1 million job openings at the end of June. The lack of affordable child care, fears of contracting the coronavirus, generous unemployment benefits funded by the federal government as well as pandemic-related retirements and career changes have been blamed for the disconnect.

However labour shortage is expected to ease in September according to analysts as government funded unemployment benefits start to come to an end from the 6th September and schools reopen for in-person learning.


The pound edged lower against the euro yesterday with the lack of UK data and off the back of comments made by a ECB policy maker suggesting they are now in a position to think about starting to withdraw it stimulus package.

The pound could potentially be back under pressure against the euro later in the month when extensions on the Northern Ireland trade adjustments expire and negotiations start once more.

The Euro rallied against the USD as a result of flows out of the safe-haven currency and it shrugged off the weaker than expected German retails sales and manufacturing PMI. The manufacturing reading came in at 62.6 down from the forecast of 62.7.

The only UK data out yesterday was the Purchasing Managers Index survey which in August came in slightly better than earlier flash numbers. It confirmed that British factory output grew at the weakest rate for six months as supply chain problems weighed, but the pound was unmoved after the release.

Key announcements

1.30 – US Unemployment claims-

6.00 – US FOMC members Bostic & Daly Speak

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