The US dollar bounced back in front of blockbuster US non-farm payrolls data, recovering some bullish form as strong signs of an improving US economy seemed to challenge the Federal Reserve’s somewhat dovish monetary policy announcement.

Record US weekly jobless claims data and a much better-than-expected US manufacturing report helped the US currency turn its five-week trade-weighted low into a 10-day high in just one session.

Sterling remains near five-month lows against the euro ahead of the Quarterly Inflation Report, which is shaping up to be yet another make-or-break type event for sterling this year.

Forecasts from analysts in front of key US payrolls data, which is central to US monetary policy, are calling for July job growth in the region of 184,000 to help unemployment decline slightly to 7.5 per cent.

Stronger-than-expected US employment data could send the US dollar on a broad rally by feeding expectations that the Federal Reserve could still announce a stimulus taper as soon as September.

Sterling

Sterling found some momentary support above recent lows after the Bank of England’s policy announcement did not prove to be the dovish event that some analysts had predicted.

The BoE left rates and asset purchases unchanged at 0.50 per cent and £375 billion respectively. That was the expected outcome although some in the market had positioned for another policy statement hinting at interest rates staying near rock-bottom for a while yet.

US dollar

US weekly jobless claims improved by more than analysts had estimated, falling to a five-and-a-half-year low in front of critical US non-farm payrolls report. In addition, an ISM report on US manufacturing also beat analysts’ estimates, rising to its best reading in two years. Economists widely expect non-farm payrolls to come in at 184,000, a bit cooler than June’s 195,000 but seen as enough to nudge unemployment down to 7.5 per cent.

Euro

The euro slipped from six-week highs against the US dollar after robust US economic data galvanised US dollar bulls while the European Central Bank’s policy decision weighed on the single currency. As expected, the ECB took a pass on deploying easier policy steps with the 17-member economy showing steady signs of stabilisation in recent weeks.

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