It was announced today that the US economy recorded a larger than expected increase in non-farm payroll figures; the number of people (excluding the farming industry) who have been added to the employment register. This was also complimented by a reduction in the US unemployment rate itself from 8.9% to 8.8%.
Stubbornly high US unemployment has been the major reason for the Federal Reserve’s incredibly loose monetary policy so any improvements in the labour market should point us in the direction of tighter monetary policy. Today saw further improvement with an increase in payrolls of 216k, against expectations of a more modest 191k. This is certainly encouraging news for the economy but we will need to see a series of similar improvements for an interest rate hike to be brought into view. We have heard comments today suggesting as much from the New York State Fed, who stated that even though US job growth could rise even more rapidly in coming months, there is still no need to tighten policy just yet.
Nonetheless today’s figures do provide additional evidence that the US economic recovery is strengthening. Accordingly, the US dollar is at a six-month high against the yen and has made some decent gains against both sterling and the euro today. However, the improved employment figures have actually had an inverse impact on the USD/AUD and USD/NZD pairs. This is because an improved outlook for the world’s biggest economy encourages risk appetite; investors have been given the confidence to seek higher yielding currencies over the greenback.
On the home front, sterling suffered from a disappointing set of UK manufacturing figures today, which showed growth but at its slowest rate in five months. It seems we will have to wait a little longer for a turnaround in the fortunes of the UK’s struggling currency.
Meanwhile, congratulations to currencies direct on their football team’s league victory- a feat only explained by our absence.
A shocking session in the UK parliament today saw legislation passed to reinstate the Cornish currency (the Bezant) from 2015, a factor that may weigh on the pound in years to come...
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
