As is too often the case, the US non-farm payrolls offered up less information than it did stir up confusion. The actually employment change was far weaker than the market had hoped for, coming in at an additional 36,000, against forecasts of 139,000. However the unemployment rate dropped from 9.4% to 9.0%.
This dramatic fall in the jobless level could come as a result of a drop in the number of people actually seeking employment. As they cease to look for work, they cease to be classified as unemployed. The disappointing employment change data is likely to take the prominent position among investors as we head in to next week, but nonetheless the dollar has enjoyed a strong close to the week.
The euro dropped to a ten-day low of $1.3547 as investors used the mixed data as an excuse to cash in on profits. The pound has also lost ground this afternoon, dropping back below $1.61.
However heading into next week, we continue to fly the flag of sterling optimism! When the market looks closely at today’s US employment figures it’s likely to conclude that the Fed are going to be in no further hurry to tighten policy. Indeed, Fed Chairman Bernanke could well reiterate that stance during a speech in front of the House Budget Committee on Wednesday, which would pile the pressure back on the dollar.
Against the euro too we see some upside next week ahead of the Bank of England’s policy announcement on Thursday. The market is pricing in a very small chance that the Bank could actually decide to raise interest rates. We’re unconvinced (as I think most are) that they’ll go ahead with such a move but that won’t stop little rumours being thrown around, which shouldn’t do sterling any harm.
In the meantime, the currency markets can take a back seat as Twickenham lights up the opening of this year’s Six Nations! Who guessed it would be Mike Tindall at the helm for England.…!?
Duncan Higgins
Senior Analyst - Caxton FX
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