However, the week’s gains in the USD-index were all pared on Friday as the USD weakened aggressively in the wake of extremely low wage growth (US Employment Cost Index (Q2) 0.20 vs. Exp. 0.60). While this data does not traditionally see as a significant reaction as today, the fact that markets have been thin exacerbated the move and caught some participants by surprise as a result of the focus on positive data, with wages a significant factor in the FOMC consideration for a rate hike, with the data dampening expectations for a September move. Some analysts also noted that because the ECI tracks the same job over time, it removes changes in the mix of employees across industries, which is considered a limitation of the hourly earnings figures, giving this data even more significance. Furthermore, at the June press conference, Fed chair Yellen highlighted the US employment cost index as a key indicator in regards to labour market outlook.
Looking ahead to next week, the USD will again be focus with US Nonfarm payrolls report expected on Friday. This month’s report may hold extra importance considering the data dependency of the Fed and the fact that a rate hike is now on the table at every rate decision. Next week also sees what is dubbed at `Super Thursday`, which will see the BoE report their rate decision, minutes and Quarterly Inflation Report all at the same time on the same day for the first time. The QIR and minutes will be in particular focus given the recent hawkish rhetoric of some BoE members, with last month’s meeting see some MPC members suggest it was a fine balance as to whether to vote for a rate hike or not.
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