The U.S. dollar was mostly flat overnight, but rallied against the British pound and fell against the South African rand. Despite a flurry of slightly better-than-expected data last week, the greenback has been unable to make significant gains against the Euro. However, a slew of risk events are slated for this week and will look to jolt the U.S. dollar out of recent ranges.
Later this morning, Markit Manufacturing is expected to register growth of 51.4, holding steady with the gains from the month prior. A reading above 50 indicates expansion. ISM manufacturing is also expected to tick higher, while construction spending is forecast to register modest gains.
Two different Fed members (Lacker and Evans) are scheduled to speak on Tuesday. ADP’s private payroll number will highlight Wednesday docket with economist forecasting a rise of 165K private jobs in September. Some see this number as potential foreshadowing of Friday’s Non-farm payroll numbers. NFP and the unemployment rate represent the single largest risk event on this week’s economic schedule. The Federal Reserve has maintained that it is data dependent on whether they will hike interest rates. A strong jobs print will boost chances the Fed will boost rates at its December meeting, benefiting the dollar as well. A disappointing reading will suppress interest rate odds and weigh on the greenback. Currently, Fed Fund Futures show a 59% chance the central bank will find the scope to raise rates in December.
The British pound was the biggest loser overnight, falling nearly 1.0% against its American counterpart. In a speech over the weekend, new British Prime Minister Theresa May said that she will begin the process of withdrawal from the European Union in the first quarter of 2017. She also said that she will curb immigration which has stoked further speculation that the nation is headed for a “hard Brexit”. This means that the United Kingdom would not have access to the EU’s single market which would put added stress on the U.K.’s economy.
As a result, the sterling has fallen against all of its rivals and now rests at the lowest level against the U.S. dollar in 31 years. The sterling is 13% lower against the U.S. dollar since the British people voted to leave the E.U. at the end of June.
The Canadian dollar continued its momentum from last week overnight, extending its gains another 0.4% overnight. The “loonie” is 1.0% stronger against the U.S. dollar than last Monday. Oil began a rally last week after OPEC announced that it may have come to an agreement to limit production, causing oil prices to rally. Brent is now trading above $50 a barrel. The details over the OPEC deal remain foggy so a quick reversal should not be ruled out.