Payroll Thursday

Sterling lost more ground against the EUR and the USD yesterday as the repercussions of the lower GDP number continued to weigh it down. The euro was lifted following news from the OECD stating that there is no risk of deflation for the euro zone and a report from Reuters that the Chinese had asked for a new reserve currency to be discussed at the G8 next week - EUR/USD pushed up to 1.42 before selling by the Bank of International Settlements and Russia eased it back to 1.41. The euro gained further against sterling forcing it back towards 1.16 and the lows of the current trading range. Data from the UK yesterday was actually slightly better than expected with manufacturing activity shrinking at its slowest pace for a year - although this raised hopes that GDP data will improve later in the year it was not significant to stop the slip in sterling.

Today the main focus will be on payroll data from the US out at 13:30 GMT… Non-farm payroll data is the most important data point for all financial markets and is released normally on the first Friday of each month (this month Thursday due to the Independence day holiday tomorrow). Reaction to the data can cause huge volatility in the FX markets led by the USD as sentiment and expectation are measured in real time - a good number is US dollar positive and a weak number USD negative in normal markets. However at the moment in the current economic climate a good number will add to the risk appetite bandwagon and could lead to a sell off in the USD on improved sentiment. The number for June is expected around -365k and unemployment is expected a touch higher at 9.6% from 9.4% previously. If we see a 10-20% deviation from the expected, then hang on to your hats.

Also today we have the monthly European Central Bank meeting from the ECB. Rates are expected to be kept on hold at 1% but it will be the statement following that could affect the FX markets with any talk of additional QE measures (unlikely) moving the euro.

A big mover in the markets yesterday was the Polish Zloty which advanced to its highest level in six weeks against the euro. Poland has lined up a World Bank loan of $4.5 billion and the pace of manufacturing shrank so a double win for the currency yesterday.