Of Enrique Diaz-Alvarez

Last week’s strong financial figures have led the markets to evaluate less interest rates than the Fed. Expenditure remains healthy and compatible with decent growth, despite the slowdown in the labor market. With Europe not showing signs of acceleration, the rise of US interest rates was enough to boost the dollar against all the main coins.

The forthcoming court ruling on the legality of the dismissal of Fed Liz Cook’s administrator by Trump with its possible impact on Fed’s independence remains a risk factor for the dollar; however, the basic alternative to the dollar does not seem to be any other currency but gold.

This week interest should focus on the critical report on the US labor market in September (Friday), but the US political scene can again overshadow financial data. A possible suspension of the US Federal Government, if not approved by a funding bill by October 1, could delay the publication of the report.

In the euro area, the preliminary announcement on September inflation (Wednesday) will be the other focus on markets. In the United Kingdom, the fragile climate in the bond market will keep the attention on the intra -party developments of labor and their impact on deficit and budget.

Sterling

PMI indicators showed a loss of dynamics in the United Kingdom economy, as the shrinkage of the manufacturing sector is accelerating. Government bond yields remain close to perennial highs, as markets remain cautious about the will and ability of the labor government to reduce the fiscal deficit.

Sterling is mainly supported by the highest interest rates in the world of main coins; however, it reflects the clear stagnant state of the British economy, which limits the ability of the Bank of England to provide monetary stimulation without causing bond market turmoil.

Euro

Last week’s PMI elements are in line with sluggish growth, with a slight shrinkage of processing being offset by better data in the services. The absence of any push of the large German support package announced almost six months ago remains enigmatic. Inflation expectations have increased slightly; although they remain under control, this development makes any new interest rates reduction from the ECB unlikely.

September inflation data (Wednesday) are not awaited with great interest, with the structural index remaining slightly above the target for the fifth consecutive month.

Dollar

GDP growth for the second quarter has been revised higher, while home sales, constant goods orders and personal income and household expenditure has exceeded estimates. The US economy seems to be growing at a steady pace, despite the low creation of new jobs; an indication that delaying employment is more related to the job supply (due to a decrease in immigration and demographic actors) rather than to the weakness of the economy.

Successive data on the labor market, culminating in the September employment report on Friday, will give more clarity; however, the possible inability to reach an inter -debt increase in debt threshold may delay economic data publications by enhancing the image of political instability.

Enrique Diaz-Alvarez is a Chief Financial Risk Officer of the Ebury International Payment Company.