Foreign Exchange (FX) markets were immune to G20 happenings as the outcome of the latter went along predictable lines. Trade and climate cleaved the United States and G19 countries. America's little consolation was President Donald J. Trump getting his way on a few steel concerns. Market participants view the G20 as an event best ignored.
Weaker wages and neutral dollars
The Federal Reserve will take advantage of the weaker wage growth. It will wait for the inflation signals to jump up and then increase the rates that supports present market view of the balance sheet announcement during the month of September. It will be followed by rate hikes in December.
The dollar trades neutral in Asian stock markets. Equities continue to see a vibrant trade. For global equities and the US dollar, the Goldilocks NFP is a sure shot. This headline will keep on track the hike expectations. Normalization will happen at a slower pace with lower inflation. Since there is an increase of decoupling between the employment data and wages, it is perceived that the CPI will create a greater impact on the Federal Reserve policy compared to the job prints. It follows that traders will closely examine the present USD CPI print.
Dealers continue to decipher the ramifications of Nonfarm Payroll data spewed out on June 7. The USD suffered an increase in volatility post weaker than anticipated median hourly wages. The majority of the dealers turned their attention to the wage numbers. Empirical reports were not specifically negative towards the United States Dollar. This is a result of greater participation rates, better jobs, and positive revisions. Currency movements surprisingly continued to be placid. The USD was suddenly sold off and it was followed by the currency moving up higher. Even though the wage factor was not influential at all to increase the chances of a rate hike, the positive atmosphere will be present during the complete rate hike cycle.
The Bank of Japan follows an economic map totally different from the United States. This is again brought into prominence with the market wanting an end to the always on money printing machines by banks. Traders were caught by Bank of Japan in the wrong way after the bond was aggressively bought. All these are positive signs on USDJPY in the context of divergence narrative. The USDJPY could move up in the earlier part of this week. When it came to the Euro, all were quiet.