Major currencies steady ahead of crucial US nonfarm payroll report
05/Jun/2015 • Currency Updates•
Sterling rallied strongly versus its major peers as markets opened in London on Thursday and, despite faltering slightly in the early afternoon, the Pound finished 0.3% higher on the US Dollar.
Yesterday morning we saw no surprises from the Bank of England at the announcement of this month’s interest rate decision, following the two day long monetary policy meeting. The central bank kept the benchmark interest rate unchanged at 0.5%, having remained at that level since 2009. The level of the bank’s asset purchasing facility, also known as quantitative easing, was also left unchanged at £375 billion. Robust consumer activity and signs of a pickup in the housing and labour markets means we expect UK interest rates to begin increasing in Spring 2016.
The latest consumer inflation expectations report is expected to cause most volatility in Sterling this morning, when released by the Bank of England at 9.30am today.
The Euro appreciated to its strongest position since mid-March against the US Dollar after German bond yields soared to their highest since September. However, the single currency trailed off as the day progressed to end just 0.4% higher.
Greece’s future remains unresolved following talks on Wednesday night, which ended without a deal, after Greece rejected proposals put forward by its creditors. Optimism that a deal could be reached imminently was dashed by Finance Minister Varoufakis, who claimed the country had until the end of the month to secure an agreement, dismissing the idea that creditors had issued an ultimatum. Varoufakis’ comments show that there are still a number of differences to be resolved, namely the primary surplus target. Data released in the Eurozone was limited yesterday. The level of unemployment in France did, however, trend downwards in the first quarter, down to 10.3% from 10.4%.
Revised growth figures from Eurostat, set for release this morning, are expected to remain unchanged. Greece will remain in the spotlight. Alexis Tsipras will be addressing Parliament on the crisis at around 4pm London time.
The US Dollar dipped early in trading yesterday, although recovered to finish only 0.1% lower against its peers.
Initial claims for jobless benefits came in slightly stronger than expected again in the US. The initial jobless claims figure declined to a seasonally adjusted 276,000 in the week ending 30th May, according to the Labor Department. Despite increasing marginally, the four week moving average remains in a strong position at 274,750. Continuing claims for jobless benefits also impressed, with yesterday’s reading of just under 2.2 million the lowest since November 2000, although this works on a one week lag.
In a slightly unusual move, the International Monetary Fund urged the US to delay a rate hike into 2016 due to “pockets of vulnerability” in the US economy. However, with both wages and inflation continuing to move upwards in the US, we believe it is clear that the current emergency monetary policy settings are no longer appropriate, with the majority of FOMC member thinking likewise.
Focus in the US today will be on the monthly labour report at 1.30pm BST. The latest nonfarm payroll figures are widely expected to print within the 200-250k range again. Any deviation from this will likely cause a large movement in the Dollar, with a strong number north of 250k likely to reverse the recent downward pressure on the US currency.
Rest of the world
Russia’s central bank claimed it was “comfortable” building up additional currency reserves up to $500 billion, as the economic crisis facing the country is far from over. Meanwhile, the Nigerian central bank made a very minor adjustment to its exchange rate peg against the US Dollar, which could indicate that it is beginning to contemplate loosening its currency regime.