Expert Analysis of Today's Market

• The dollar dropped against major currencies on Friday after reports showed slowdowns in payrolls growth and services industries. Today’s softer-than-expected US data led to declines in the US stock market and exacerbated the dollar’s sell-off.


• Sterling had a weekly gain against the yen and dollar as carry trades resumed and on expectations the Bank of England will raise interest rates at least once more from 5.75% by yearend. The pound rose versus the dollar at 2.0420 in NY trading at 3:49 pm. We stopped out.

Financial and Economic News and Comments

US & Canada

• US nonfarm payrolls rose a less-than-forecast 92,000 in July, down from 126,000 in June and 188,000 in May, the Labor Department said. Previous reports showed job growth of 132,000 in June and 190,000 in May. Monthly job growth has averaged 136,000 so far this year.

• The July unemployment rate unexpectedly rose to 4.6%, the first increase since April, from 4.5% in June, indicating the labor market is cooling. The yellow shaded areas in the chart represent recessions. Unemployment usually rose before a recession. The US unemployment rate, while not having significantly risen, has stopped falling. That could be a warning sign.

• Wages gained 3.9% from a year earlier. Average weekly hours worked by production workers declined to 33.8 from 33.9. Average weekly earnings rose to $589.81 from $589.52. Overall the July job reports suggest the US economy started Q3 on a softer note after robust growth in Q2.


• Growth in US service industries slowed more than expected in July. The ISM non-manufacturing business index fell to 55.8 in July, the biggest decline in almost 2 years, from 60.7 in June, the Institute for Supply Management reported. A reading above 50 indicates growth.


• Canadian building permits slipping only 0.4% in June from a peak in May to the second-highest level on record, Statistics Canada said.

Europe

• Europe’s services growth unexpectedly held at the fastest pace in a year in July. Royal Bank of Scotland Group Plc said its services index stayed at a higher-than-estimated 58.3 in July, the highest since June last year. A reading above 50 indicates expansion.


• The UK services sector in July saw its weakest increase in activity since September last year. The headline activity index fell more than forecast to 57.0 in July from 57.7 in June, the Chartered Institute of Purchasing and Supply and Royal Bank of Scotland Group Plc said.


• The services growth index for Germany fell to 58.5 in July from 58.9 in June, according to NTC/BME.


• Eurozone retail sales rose a less-than-expected 0.4% in June, Eurostat reported.


• Eurozone inflation is low for now but looking ahead there are several price risks looming that must be countered by monetary authorities, European Central Bank Executive Board member Lorenzo Bini Smaghi said.

Asia-Pacific

• Australia and Japan have agreed to adopt a new income tax treaty that will boost investment in the nations’ equity markets, Treasurer Peter Costello and Finance Minister Koji Omi said.


• Currency flexibility is required to reduce global economic imbalances, Asia-Pacific finance ministers said. “The orderly reduction in global imbalances remains a priority,” the ministers said in their statement from the Asia Pacific Economic Cooperation (APEC) meeting in Coolum, Australia.

FX Strategy Update