For the second day running, the US dollar was boosted by employment data. Action in the Asian session on Thursday was again dominated by the Australian dollar. The main data releases were slightly weaker than expected with a 0.5% retail sales decline for June, offset to some extent by a strong rise in building approvals of 9.9% for the month.
The data was over-shadowed by fresh comments from Reserve Bank Governor Stevens who stated that markets were not ascribing enough risk to the possibility of a sharp currency decline. AUD/USD retreated sharply in response with lows below 0.9370 into the European open.
The latest UK PMI services-sector data was weaker than expected with a decline to 57.7 for June from 58.5 previously. GBP/USD spiked lower, but there was a strong employment component which helped stem further initial losses with solid buying on dips.
After the flurry of action at the European open, markets then settled into the pre-payrolls reverie with EUR/USD trapped near 1.3650 as the Euro-zone PMI data had little impact. Caution was inevitably enhanced by the ECB press conference due to start at the same time. There was no surprise on policy from the central bank decision with all main rates left on hold.
The headline US employment data was much stronger than expected with an increase of 288,000 for June after an upwardly-revised 224,000 previously and this was the fifth consecutive figure above 200,000 which suggested sustained strength in the labour market. Unemployment fell to the lowest level for close to six years at 6.1% from 6.3% and hourly earnings growth was steady.
EUR/USD spiked lower to the 1.3620 area in immediate response and USD/JPY jumped back above 102.00 with highs around 102.20 as US bond yields rose and markets looked to price in a more aggressive Fed tone.
ECB President Draghi maintained the commitment to a very loose monetary policy and stated that the TLTRO programme to provide additional liquidity could be as much as EUR1.0trn. He also stated that the ECB was committed to further action if necessary while not being able to take action at every meeting. The comments overall were close to expectations with a slightly dovish tinge and EUR/USD dipped to lows just below 1.36 before finding support.
The latest ISM non-manufacturing data was slightly disappointing at 56.0 from 56.3 previously. Although underlying components were firm with both orders and inflation above the 60.0 level, the dollar was unable to gain further ground. Sterling was resilient during the New York session with GBP/USD creeping back towards 1.7150 from lows below 1.7100 as EUR/GBP retreated to below the 0.7950 level.