US Dollar stabilises following last week’s disappointing labour data
08/Apr/2015 • Currency Updates•
A volatile day for Sterling saw the UK currency end trading 0.25% lower against the US Dollar as markets opened for the week following the Easter break.
The UK economy “moved up a gear in March” according to Markit’s Chief Economist Chris Williamson after service sector growth rose sharply last month. March’s flash PMI increased from 56.7 to 58.9, its highest since August, after falling prices helped boost consumer spending in Britain. This, combined with recent data from Markit, suggests the UK economy grew by 0.7% in the first quarter of the year, up from the 0.6% growth from late last year according to a Confederation of British Industry estimate. This will be welcome news to the Conservative party as it continues its election campaign.
A quiet day in the UK on Wednesday means market focus will likely shift to the US and the FOMC minutes later tonight.
The Euro fell sharply on Tuesday morning, down 0.7% on the Dollar despite cheaper oil and the launch of quantitative easing continuing to support economic performance in the currency bloc.
Eurozone sector growth continued to perform strongly in March according to Markit. The flash services PMI fell slightly from 54.3 to 54.2, although remains close to the multi-year high level reached last summer. All the Eurozone’s major economies, except for France, appeared to be in a stronger shape. German and Italian readings soared to eight month highs while growth in Spain’s service sector rose markedly to its strongest position in two months. Yesterday’s data suggests that the Eurozone is on course for a modest 0.3% growth in the first quarter. Investor confidence continues to improve, with sentiment rising for a sixth straight month to a multiyear high reading of 20 from the previous 18.6. However producer prices fell once again in March, down by 2.8% year on year and 0.5% month on month, according to Eurostat.
Retail sales data at 10am today will likely be the biggest market mover in an otherwise quiet day.
All losses following last Friday’s weak employment data were wiped out on Tuesday after the US Dollar index rose by 0.6%.
The crucial non-farm payroll failed to meet expectations last Friday, coming in well below forecast, with the US adding just 126,000 jobs in March. The disappointing report came after twelve straight months of adding over 200,000 jobs a month, and marked the lowest reading since December 2013. The Labor Department also revised lower its jobs data for January and February to 201,000 and 264,000 respectively, with harsh winter weather taking its toll on the pace of hiring. Despite this, the rate of unemployment held steady as expected at 5.5%, with the number of unemployed Americans remaining little changed at 8.6 million. Labour force participation and average hours dipped marginally. In other news over the Easter period, New York Fed President William Dudley spoke about uncertainty in the first interest rate hike, while ISM’s index of non-manufacturing growth declined marginally from 56.9 to 56.5.
Mostly second-tier releases in the US yesterday. The latest job openings data from JOLTS rose again to 5.133 million while Fed member Narayana Kocherlakota stated the US should be “extraordinarily patient” with its rate hike. The historically dovish Minneapolis Fed President warned the central bank should wait for further improvement in employment growth.
More volatility expected this evening as the Federal Reserve releases its minutes from its March meeting at 7pm London time.
Rest of the world
Russia’s central bank vowed to rely on interest rates in order to boost its recession-bound economy with Governor Elvira Nabiullina ruling out quantitative easing. Meanwhile, the Reserve Bank of Australia surprised markets again by failing to cut its interest rate from its current 2.25%.