U.S. Session Forex Recap – Oct. 4, 2016

  • U.S. ISM manufacturing PMI up from 49.4 to 51.5 vs. 50.4 consensus
  • ISM manu PMI employment component up from 48.3 to 49.7
  • U.S. construction spending down by 0.7% vs. projected 0.3% gain
  • U.S. total vehicle sales up from 17M to 17.8M

Stronger than expected U.S. ISM manufacturing PMI gave dollar bulls hope that the upcoming NFP release could reinforce Fed rate hike expectations.

Major Events:

Mostly upbeat U.S. data – The higher than expected ISM manufacturing PMI reading for September was the main story for the New York session, as the figure indicated a return to industry expansion. The reading rose from 49.4 to 51.5, outpacing the consensus at 50.4.

Components of the report indicated that the employment sub-index was up from 48.3 to 49.7 during the month, reflecting a slower pace of contraction. Stronger gains were seen in new orders and production while the component for prices was unchanged at 53.0 instead of rising to the 53.5 consensus, suggesting subdued inflationary pressures.

The rest of the medium-tier reports were a mixed bag, with construction spending down by 0.7% instead of posting the projected 0.3% gain and total vehicles sales jumping from 17 million to 17.8 million in September.

Remarks from Fed officials – Fed official Dudley wasn’t feeling the hawkish vibes, though, as he mentioned in his testimony that monetary policy remains accommodative for now. He explained that the effectiveness of Fed policy is constrained by the zero lower bound and that better communication is needed for the markets to understand the central bank’s framework.

Meanwhile, Fed official Mester reminded that every policy meeting is live, including November. She said that the Fed is making progress in achieving its goals and that a gradual path in tightening is warranted, adding that higher interest rates won’t worsen the situation among European banks.

Major Market Movers:

USD – The U.S. dollar popped higher against most of its peers upon seeing the ISM report and the improvement in the jobs component.

EUR/USD slid from 1.1236 to a low of 1.1203, USD/CHF climbed from .9716 to a high of .9745, USD/JPY is up from 101.37 to 101.69, but the commodity currencies managed to hold on to their lead.

GBP – Sterling was the biggest loser for the day as the looming Brexit brought a fresh wave of jitters to the U.K. economy.

GBP/USD tumbled from 1.2870 to a low of 1.2816, GBP/JPY dipped from 130.56 to a low of 130.09 before recovering to 130.74, EUR/GBP is up from .8725 to a high of .8745, and GBP/CHF is down from 1.2503 to a low of 1.2746.

Watch Out For:

  • Chinese banks closed for the holiday
  • 12:30 am GMT: Australian building approvals (-5.8% expected, +11.3% previous)
  • 1:30 am GMT: RBNZ head Wheeler’s testimony
  • 3:30 am GMT: RBA interest rate statement (Read Forex Gump’s guide here!)
  • 5:00 am GMT: Japanese consumer confidence index (41.8 expected, 42.0 previous)

See also:

London Session Recap

Asian Session Recap

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