ECB leaves interest rates unchanged. EUR losses across the board. Market primed on Non-Farm Payroll release at 1.30PM
04/Apr/2014 • Currency Updates•
London closed with sterling slightly up on the euro and dipping against the greenback.
UK service sector PMI came in slightly below expectations. However, the figures still display solid growth with expansion at a fairly consistent pace. PMI came in at 58.3, down from 58.8. The service sector covers about 3/4 of the UK economy; thus the figures often hold a parallel for wider economic performance. The employment market looks rosy, as the sector has rising orders coupled with high levels of confidence, typically this would lead to firms expanding their workforce.
Despite the latest PMI reading coming in below market expectations, the UK economy continues to grow at a rapid pace. The results of the 3 latest PMI surveys would suggest the UK economy will grow by 0.8% in the first quarter of the year. This would be an increase on the rate of 0.7% in the final quarter of 2013.
Data of note today – Halifax house prices for February.
The limelight swung once again to the ECB yesterday, the street had been split over whether an interest rate cut would be forthcoming. Draghi delivered the headline news that no interest rate change would occur. However, the ECB remains ready to employ alternative methods to fight the threat of deflation and a euro that has recently been trading at very high levels.
The euro flipped its gains and came crashing down yesterday. The euro dipped almost half a cent against the dollar and London opens with EUR/USD at lows not seen since last February. The euro was down against the pound and, pretty much across the board, the story was the same. Euro bourses rallied following the news. However, yesterday was the clearest indication yet by Draghi that the ECB is prepared to embrace QE to defend the Eurozone against the crippling threat of deflation. Draghi stated, “the council is unanimous in its commitment to also using unconventional instruments within its mandate in order to cope effectively with risks of a prolonged period of low inflation”. Draghi also sought to blame the inflation fall on low prices over the eater period combined with low energy costs. Although with inflation at 4 year lows most in the market are unconvinced.
German factory orders came in below expectations this morning, Greek retail sales are set for release later today.
The greenback had a strong day yesterday punching solid gains across the board, following encouraging ADP numbers earlier in the week, and this was coupled with another day of strong data releases. The Asian session has seen continual support for the dollar, and London opens with the greenback trading close to 5-week highs against its most traded basket of currencies.
Non-Farm Payroll is called at 200,000 which would mean a significant jump from the previous month’s reading of 175,000. A 200k figure would mean the jobless rate returning to the 5 year low of 6.6 reached in January. It would also serve to prove that the run of poor data over the winter was due to the shocking weather which left many unable to go to work.
A quicker pace of hiring could bring forward expectations for when the Fed will shift IR up from nearly zero. The smart money is betting on the middle of next year and this has been widely priced into the market. Yellen has argued that the Fed needs to keep a highly accommodative monetary policy for some time to eliminate slack in the labour market.
Non-Farm Payroll is set for release at 1.30 GMT- an eventful day.