Euro sees slight recovery following ECB liquidity decision

Tom Tong03/Dec/2010Currency Updates

GBP

The pound has slipped back against the single currency yesterday despite better-than-expected PMI data this week, but it gained against the dollar on the back of poor in initial jobless claims data in the US. Today’s November Services PMI is expected to show a figure of 53.2 – unchanged from the previous month. However, a better figure could well indicate that growth in the UK during the fourth quarter could well beat expectations in the same way Q3 growth did, having a positive impact on the strength of sterling. Also today the Halifax housing prices data underwhelmed and continues the recent trend of poor housing market data in the UK; however, the impact of this number has not been seen in the market.

USD

Today’s US non-farm payrolls for November could be the catalyst that pulls the US dollar back around after two successive days of falls on some mixed economic data. With the ECB’s meeting concluded, the focus in markets has shifted to the US data due today. All eyes are on the Non-Farming payroll figure after initial jobless claims data disappointed yesterday. The government is expected to report that nonfarm payrolls rose 140,000 last month, according to a Reuter’s survey. A stronger-than-expected gain in payrolls should bode well for the dollar. The string of data for the past several weeks has been not only better-than-expected but also suggested some modest acceleration of the US economy. However it is worth considering that yesterday’s poor jobless claims and weak housing data dented some confidence.

EUR

The euro rose yesterday following the European Central Bank’s decision to keep liquidity flowing through its emergency bond-buying programme helping to prop up the struggling Eurozone. The euro made gains yesterday after the European Central Bank aggressively bought Eurozone periphery debt, even though it avoided explicitly committing itself to ramping up bond buying. Traders said that the ECB was buying Portuguese and Irish debt, pushing down yields on Eurozone periphery countries’ bonds. That calmed investor panic over Eurozone debt for now, helping the single currency. However, lingering concerns about the outlook for peripheral Eurozone countries should continue to put pressure on the currency in the midterm. Despite the positives there was still some disappointment ECB President Jean-Claude Trichet did not announce a more aggressive policy response to the Eurozone debt crisis. Some traders have indicated that a strong US jobs figure is likely to encourage more risk appetite, which could help the euro this afternoon.

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Written by Tom Tong

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