Dollar climbs despite US employment growth slowing in January

Enrique Díaz-Álvarez05/Feb/2015Currency Updates

GBP

Sterling was given a boost on Wednesday after encouraging growth data was released. The Pound finished the day 0.35% up on the Dollar and a massive 0.75% up versus the Euro.

Service sector businesses in the UK enjoyed a surprisingly strong January after output grew more than markets had expected. The Services Purchasing Managers Index published on Wednesday rose sharply from 55.8 in December to 57.2 last month. Not only was this the best reading since June, but it also marked the second highest index level in the survey’s nineteen year history. The monthly survey by Markit suggests that the UK economy is now growing marginally higher than the 0.5% expansion it experienced in the final quarter of last year. Elsewhere in the UK on Wednesday, the Institute of Fiscal Studies (IFS) stated that the worst of UK government spending cuts are still to come, while UK shop prices continue to fall according to the British Retail Consortium after their Shop Price index fell by 1.3% in January.

A unanimous vote to keep interest rates unchanged in January ensures there is no danger of a shock hike in the rate this morning at the release of the Bank of England’s interest rate decision at 12pm. Most Sterling volatility will therefore be down to releases and announcements elsewhere.

EUR

Much of the single currency’s gains on Monday and Tuesday were wiped out yesterday after the Euro depreciated by 0.45% against greenback. Talks between Mario Draghi and Greece’s new Finance Minister, Yanis Varoufakis, the two men leading the renegotiation effort surrounding Greece’s debt, were “fruitful” yesterday according to the Greek government.

In terms of data, sales in the retail sector rose in the Eurozone once again on Wednesday according to Eurostat. The Retail Sales measure experienced its fastest annual pace of expansion in almost eight years after climbing by an annualised 2.8% in December. In comparison with the third quarter of 2014, retail sales increased considerably by 0.9% QoQ, hinting at a slight pickup in growth and alleviating some of the fears surrounding the Euro-area entering into a deflationary spiral. Equally as encouraging, service sector expansion increased more than was anticipated after Markit’s PMI rose from 51.6 to 52.7 last month, lifting the composite index to its strongest position since July of 52.6.

At 8am this morning the ECB will launch a new publication, known as the “Economic Bulletin”. This will be released two weeks after every ECB meeting, replacing the existing monthly ECB Bulletin.

USD

The Dollar stabilised somewhat yesterday having fallen on Tuesday, climbing by 0.35% against its major counterparts.

The Institute of Supply Managers non-manufacturing PMI edged up marginally above expectations in January. Of the 18 industries surveyed, eight reported increases in activity, a further eight registered decreases, while the remaining two were unchanged. This was enough to boost the measure from 56.2 in December to 56.7 last month. The same report showed that the new orders index rose from 59.2 to 59.5, while the ISM business activity/production index soared from 58.6 to 61.5.

However, on the negative, growth in the number of jobs added in the US economy declined in January. The ADP employment change showed the number of employed people rose by 213,000, although this was considerably down on the 253,000 rise that was recorded in December. The smaller than expected climb was the lowest monthly gain since September.
Finally, service sector growth in the US rebounded modestly in January despite companies registering the weakest level of new business growth in more than five years. Markit’s flash services PMI printed higher at 54.2, its strongest level of growth in three months.

A mostly quiet day in the United States on Thursday, with the main announcement the weekly jobless claims data at 1.30pm followed closely by the trade balance for December.

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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.