Euro strength continues as market awaits Non Farm Payroll figures

Tom Tong01/Feb/2013Currency Updates

GBP

The pound rose for its third day against the dollar yesterday and advanced away from its 13 month low versus the Euro. This was due to reports showing UK consumer confidence and house prices both increased in the month of January. The consensus being that the Bank of England’s policy is starting to drip through to the real economy. In terms of the UK’s trade performance one of the problems seems to be its heavy dependence on Europe. The impact of austerity measures in the peripheral Eurozone countries have naturally led to import volumes. This is mirrored by the UKs current account deficit with the EU countries doubling to 4.5% in just five years. So in a sense the UK in particular is a victim of these savage austerity programmes across the Eurozone.

There is no major data released today in the UK.

EUR

Risk appetite improved amid speculation that the worst is over in the Eurozone’s debt crisis. This lead to the Euro heading for its sixth consecutive month of gains, which is its longest stretch of monthly gains since 2003 hitting its highest point since the 18th November 2011. One of the single currency’s biggest moves was against the dollar where it gained 2.9 percent in January alone however it climbed a huge 8.2 percent against the Yen. However, it was not all a day of good news as a drop in retail sales in Germany initially put the Euro under some pressure. this was quickly forgotten as the bullish trend for the 17 nation currency continued during U.S. trading. Many analysts believe that the Euro will continue it’s upwards trend against its counterparties. This is generally as a result of the ECB tightening its monetary policy through the shrinking of its balance sheet which stands in contrast to current monetary policy actions taken by other G10 central banks encouraging the Euro to overshoot economic fundamentals in the near term.

The most pertinent data released today from the Eurozone is the consumer price index YOY for January and the unemployment rate for December.

USD

Strong durable goods data earlier in the week saw investors seeking more risky assets and as they sought to get out of their Dollar positions, as such the currency began to weaken.
The dollar continued to deteriorate against the pound after the number of jobless claimants in the U.S. climbed up to 368,000 more than the 350, 000 anticipated by economists.
The Central Bank also left unchanged its statement that it planned to hold its target interest rate near zero as long as unemployment remains above 6.5% and project inflation stays below 2.5%. Consumer confidence for the US disappointed, as investors sold their Dollar positions. Data confirmed speculation that the Fed was likely to remain dovish on its Quantitative Easing program
The monthly non-farm payroll figure is set to be released in the later in the US today it is expected to show that 161,000 jobs were added in December and the unemployment rate remained steady at 7.8%. The second major report is the ISM manufacturing PMI consensus 50.8 up from 50.7 last month.

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Written by Tom Tong

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