Disappointing US NFP report pushes back expectations of Fed rate hike from December to January

Today’s session saw a bit of a break from the slew of Greek headlines flooding the market place and as such, price action in the early stages of the European session was slightly more muted than has been the case throughout the week. In terms of developments on Greece, today saw the Eurogroup reiterate their party line with Dijsselbloem saying that discussions will not resume until the referendum has been carried out and that a ‘no’ victory will not help negotiations. In terms of the Greek perspective, Greek Fin. Min. Varoufakis said a ‘yes’ victory will lead to his resignation and a ‘no’ vote will help reignite talks and as such all eyes now turn to the outcome of the vote on Sunday 5th July.

With events in Europe less of a source of price action, all eyes were on the monthly US jobs report which saw a miss on the headline NFP reading, downward revision to the previous, weak net revision, disappointing earnings data and the fall in the unemployment rate was due to participants exiting the labour market and not as a result of job creation. Will the jobs report overall relatively disappointing this saw an instant bout of weakness in the USD as participants pushed back expectations of Fed rate lift-off with Fed Fund rates now indicating a higher probability of a rate hike by the Fed in 2016 (January 2016 - 66%), as opposed to 59% probability of a hike in December 2015 prior to the release. Probability of a rate hike in December 2015 now stands at 49%.

Aside from the jobs report, the SEK was weighed on after the Riksbank unexpectedly cut their interest rate by 10bps to -0.35% from -0.25%, QE extended by SEK 45bln and cut inflation expectations for 2015 & 2016. Elsewhere, UK Construction PMI (58.1 vs. Exp. 56.5) came out better than expected, leading to strength in GBP in the first half of the session.