We enter a new month and it’s a month that is going to be pivotal for the dollar. The greenback has been clawing away at the prospect of a further rate increase from the Fed and tomorrow’s employment report could well determine whether the Fed has the ammunition to move rates higher later this month. Certainly, the message from Fed officials has largely reflected an intention to increase rates, but not going as far as a commitment. The Fed has probably wrong-footed the market once too often on that front, hence we have not had the level of forward guidance seen in the past. This sets up the dollar for a potentially choppy few weeks ahead.
Before then, the overnight session has seen better than expected PMI data in China, with the manufacturing series back above the 50.0 level at 50.4, from 49.9 in the previous month. Currencies have been held to a relatively narrow range, with the Korean won the main moving and weakening around 0.5% on disappointing current account data. The yen has stabilised somewhat after the weakening seen over recent sessions, whilst EURJPY is struggling for a sustained move above the 115 level. The China data gave a modest lift to the Aussie, AUDUSD bottoming out yesterday just below the 0.75 level.
For today, the focus will be on the final PMI data seen in both the UK, Europe and also the US, together with ISM manufacturing data at 14:00 GMT. We’re likely to see greater scrutiny of UK data over the coming month as the dust settles from the Brexit vote.