EUR/USD continues to hover close to the 1.19 line in the Friday session. Currently the pair is trading at 1.1924, up 0.03% on the day. On the release front, manufacturing reports were as expected. German Manufacturing PMI improved to 59.3, close to the forecast of 59.4 points. The Eurozone Manufacturing PMI showed a similar trend, rising to 57.4, which matched the estimate. In the US, the focus will be on employment data, with the release of Average Hourly Earnings and Nonfarm Payrolls. This will be followed by ISM Manufacturing PMI.
The German and eurozone manufacturing sectors continued to show strong expansion in August, buoyed by domestic demand as well as a stronger global economy which has increased demand for German and European exports. The sharp readings underscore improvement in the eurozone economy, which has led to speculation that the ECB may taper its ultra-accommodative monetary policy. The bank’s assets purchases program is scheduled to end in December, and analysts expect the ECB to withdraw stimulus in early 2018. Still, the ECB has not provided much guidance as to its plans. ECB President Mario Draghi opted not to discuss monetary policy at last week’s meeting of central bankers at Jackson Hole, which has increased speculation that the issue will be addressed at the bank’s policy meeting on September 7. In June, Draghi spoke in positive terms about the eurozone economy, and the markets seized on his comments and sent the euro soaring. Given this kind of market behavior, any comments about monetary policy at next week’s policy meeting could have a strong impact on the euro.
After a sizzling US GDP report on Wednesday, will we see an encore from wage growth and nonfarm payrolls? The markets are braced for weak readings, with Average Hourly Earnings expected to gain just 0.2%, and nonfarm payrolls forecast to weaken to 180 thousand. If these key reports don’t beat expectations, the US dollar could lose ground. The markets will be keeping a close eye on the wage growth numbers, as a weak number would signify that inflation levels remains soft, and could lower the likelihood of a rate hike in December, which is currently below 40%.
