US non-farm payrolls demonstrate market overreaction.

Overreaction in the currency markets was demonstrated effectively today in the pound/yen currency pairing following the US non-farm payrolls data. Immediately following the release of the figures, the pound plummeted sharply as demand for the relative safety of the Japanese currency was supported by the substantial growth in US unemployment, moving up 0.2% to 9.7%, its highest level in 26 years. However, this knee-jerk reaction, that saw the pound slide 88 pips in 6 minutes, was immediately reversed with the pound proceeding to advance a full percent to an inter-day high of 151.70 as investors realised the relative strength of the payroll data itself that saw fewer jobs lost in August than had been forecast. As investors began to digest the data, the rate settled back down to its morning trading price of around 151.80. This blip in an otherwise steady trading day between the two is a fine example of how trader ambiguity can lead to overreaction on the markets following significant economic information.

The pound lost ground against the kiwi yesterday, as investors were encouraged by positive data from the NZ economy

The New Zealand currency rallied yesterday with positive services data from the UK unable to support the pound, closing down at 2.4070.

• With investors awaiting New Zealand’s interest rate decision and the RBNZ’s accompanying statement next week, investors continued to take direction from the equity markets.
  
• A strong showing in Asian equities and a decline in the major European indices stoked demand for the kiwi pushing the rate down near the 2.40 mark, and making strong inroads into the losses it incurred earlier in the week.
  
• The kiwi also benefitted from stronger export prices on commodities this month, rising to 4.3% from 1.0% in July.
  
• Japan released a positive figure on their capital spending, which encouraged investors to move away from their haven in the yen and has driven the kiwi over a cent and a half (0.7%) higher against the pound so far today.

Aussie trading remains steady today as investors await important US data this afternoon

Sterling continued to fall against the aussie, moving further away from gains made on Monday, to close down 0.4% at 1.9419.

• A choppy day in the European equity markets saw sterling relinquish early gains as stocks fell into the red in the afternoon.
  
• The aussie took a boost, however, from a rally in Asian stocks which boosted risk appetite for the higher-yielding currency.
  
• The Australian currency was prevented though from moving too high, as investors remained cautious of the RBA’s recent dovish remarks about the economic recovery.
  
• In trading so far this morning, the aussie has started to curb yesterday’s gains, with the pair currently trading steady near yesterday’s closing price.
  
• Analysts say that trading is likely to stay subdued this morning as investors await data on the US payrolls, released at 13:30 BST later today.

Single currency lost early gains yesterday following the ECB statement

The single currency eased off from strong early gains as the ECB made tepid comments about the eurozone’s recovery, stoking risk aversion.

• The single currency trimmed early gains against the greenback yesterday, as the ECB announced that it was not going to change the current 1.00% interest rate.
  
• Jean-Claude Trichet’s comment that the interest rate in the September one-year tender would remain at one percent, dampened demand for the single-currency.
  
• On releasing the news, the euro fell back from its high of 1.4346 to close the day at 1.4250.
  
• The euro also suffered as early gains in the equity markets were lost in the afternoon, diminishing risk sentiment and sending investors back to haven positions.
  
• Important information about US unemployment is released today at 13:30BST, with analysts suspecting that the overall rate will continue to rise slightly, dampening hopes of a quick recovery.
  
• The G20 also convene for their first meeting today and their statements are likely to have a significant impact on the currency markets.

Pound continues to advance against the greenback

Strong data emerging from the UK yesterday supported the pound as risk aversion eased, lifting sterling to a close $1.6316.

• The pound advanced further against the dollar yesterday as economic data showed the UK services sector grew more rapidly last month than had been anticipated.
  
• Waning risk aversion as British and European shares held their value in morning trading, also supported the pound.
  
• In the afternoon however, stock indices descended into the red, causing the pound to par its gains, falling from a six-day high of 1.6412.
  
• Questions remain about how far the pound can continue to appreciate with concerns that the UK will maintain an extremely accommodative monetary policy.
  
• The pound has continued to post marginal gains against the greenback in early trading, as investors anticipate an improved monthly non-farm employment change, data about which is released at 13:30BST.

Positive services sector data in the UK, encouraged demand for sterling

The pound continued to show strength against the euro yesterday, posting gains of 0.4% to close at 1.1446.

• Sterling continued to increase its one-week high against the single currency yesterday after a survey of the UK services sector raised hopes that the country’s economy could return to growth in the third quarter.
  
• The UK purchasing managers’ index showed the service sector expanded at a faster rate in August, with the figure coming in at 54.1 versus 53.2 in July. This was the strongest reading since Sept 2007 and was marginally above the forecast of 53.9.
  
• Additionally, firms were also at their most upbeat for two years about their prospects, reinforcing optimism about economic recovery.
  
• Sterling also benefitted from the comments of the President of the ECB, Jean-Claude Trichet, who spoke of a “gradual” and “uneven” recovery and said that the interest rates were likely to remain at 1.0% for the next twelve months.
  
• In trading this morning, the pound has capped its gains against the single currency, with the pound currently trading marginally below yesterday’s closing price.