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USD Stages Late Recovery on Solid ISM, ADP

FOREX
  • GBP/USD price action showed that markets remain content to sell rallies in the currency, regardless of the run higher in BoE market-implied pricing. An early rally in the pair followed another cycle high in the market-implied peak BOE rate, which now fully prices a 6.50% bank rate for the March meeting next year. GBP/USD rallied to touch 1.2781 just ahead of the cash equity open, but this swiftly reversed course on strong US data.
  • The ADP Employment Change release drew initial focus, doubling market expectations to print 497k vs. Exp. 225k. A strong ISM Services report followed, bolstering market expectations ahead of NFP. The subsequent run higher in the US 10y yield (hitting multi-month highs of 4.0812%) helped prop the greenback, dragging GBP/USD as much as 100 pips off the session high.
  • JPY outperformed as equities globally turned south. European markets were hit particularly hard, with the EuroStoxx50 shedding 3% on the day. While the decline in Wall Street was less extreme, the pullback in prices continues to underline the sensitivity of equity prices around a resumption of the Fed hiking cycle.
  • Focus Friday inevitably turns to the US payrolls report, with markets expecting the US to have added 225k jobs over the month of June, pressing the unemployment lower by 0.1ppts to 3.6%. The Canadian release also crosses, but an increase in unemployment is expected to 5.3, with 20k net change in employment.
  • Central bank speakers due on Friday include ECB's Lagarde, BoE's Mann and ECB's Nagel.
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