United States Dollar: The dollar retreated sharply on worse than expected non-farm payroll data on Friday afternoon. The figure, produced in published by the US Department of Labor, showed a monthly fall of 95,000 jobs in the non seasonal agricultural sector. Analysts had expected the figure to show a very small increase compared to the previous month, and as a result the latest data took markets by surprise. Many now believe that the final hurdle needed to convince the Fed to restart quantitative easing has passed, and that it is likely the Fed will resume purchases of government bonds at its next meeting in November. Immediately after the news GBP/USD jumped to 1.5932 from 1.5851 before marching a volatile path to the highs of the week at 1.5966. Over the coming days there is likely to be intense debate over the possible methods the Federal Reserve will use in an attempt to kick start the economy, and stimulate domestic demand. Despite the poor jobless numbers economist have warned that any stimulatory measures is likely to lead to protectionist attitudes in economies around the world, and that certain countries may launch economic “counter-measures” to stop their own currency from appreciating and extinguishing growth. As a result of recent meetings in Washington we may see some volatility today, but given that it is a US bank holiday (Columbus Day), it may be quiet.
– We expect a range today in the GBP/USD rate of 1.5850 to 1.6000
Euro: G10 finance ministers met in Washington this weekend to discuss economic factors and share ideas on future policy moves to boost growth. High on everyone’s agenda was the subject of currency manipulation, and there have been numerous articles pertaining to this subject alone in recent press. The simultaneous IMF meeting also focused on currency manipulation, with IMF Managing Director Dominique Strauss-Kahn chairing discussions about possible solutions to the impending “currency war”, as coined by Brazilian Finance Minister Guido Mantega. As yet there seems to be no consensus as to possible mutually beneficial solutions, and this is likely to be a driver of volatility in the short term. ECB President Jean-Claude Trichet has notably mentioned recent Euro strength, adding that it is damaging to certain economies within the Eurozone. EUR/USD rallied on Friday on the back of worse than expected US employment data, rising from an intra-day low of 1.3842 to a high of 1.3984. Trading remained volatile and finished the week at 1.3940. We open this morning at 1.3936, after touching levels not seen since early February overnight. ECBs Trichet is due to speak this evening.
– We expect a range today in the GBP/EUR rate of 1.1350 to 1.1480
Aussie and Kiwi Dollars: The Aussie rallied sharply at the end of last week on the back of stronger jobs data. The recent rallies come on the back of improved sentiment since the last RBA meeting, when Bank Officials voted to keep rates on hold and the Aussie fell. Strong home loan data out early this morning added to the improved sentiment and is likely to support demand for the high yielders in the short term. The usual mention of dampened growth because of a strong currency also crept into the press over the weekend, with specific mention to manufacturing and tourism businesses. AUD/USD pushed to 0.9907 on open last night but sold off slightly to levels around 0.9840 where we open this morning. In New Zealand, improved risk sentiment, and the prospect of cheaper US dollars drove appetite for the Kiwi. NZD/USD pushed to levels above 0.7570 towards the end of last week. There’s little on the data front today, and despite there being a US holiday we may some consolidation in the high yielders today.
– We expect a range today in the GBP/AUD rate of 1.6120 to 1.6300
– We expect a range today in the GBP/NZD rate of 2.1100 to 2.1300
Data Releases:
- AUD: No data of note
- EUR: ECBs Trichet speaks (18:30)
- GBP: MPCs Tucker speaks (13:00)
- NZD: No data of note
- USD: US Holiday – Columbus Day
