Forex

The US dollar’s consolidation continued on Friday as US non-farm payrolls (NFPs) failed to have a lasting impact on the currency. While the currency did initially jump across the majors on the news that NFPs were not quite as bad as expected at -51K (consensus expectation: -75K), the greenback pulled back over the following two hours. There were a few factors coming in to play here. First, the unemployment rate actually rose more than anticipated to a 4+ year high of 5.7 percent from 5.5 percent, highlighting the fact that NFPs have fallen for seven months in a row and the labor markets remain exceptionally weak (see our NFP Instant Insight for more). This was followed by the 10:00 EDT release of ISM Manufacturing, which fell less than expected to a reading of 50.0 in July (consensus forecast: 49.0) from 50.2, signaling a stagnation of activity in the sector. Looking at a breakdown of the report, an increase in production was offset by a contraction in new orders. Meanwhile, the prices paid component surprisingly showed that they grew at a slower pace, which should help to lessen the Federal Reserve's inflation concerns. The most startling part of the release, however, was the surge in the employment component to 51.9 from 43.7, which indicates a marked rise in hiring. This certainly would have been helpful ahead of the NFP release since it was a bit better-than-forecasts, but at the same time, would have been misleading since the report ultimately reflected net job losses in the sector. Looking ahead, Tuesday’s Federal Reserve meeting will be THE key event of next week. However, this has less to do with the actual rate decision (the FOMC is widely expected to leave rates steady at 2.00 percent) and more to do with what they say in their subsequent policy statement, as inflation-focused comments could easily drive the US dollar higher.