The US dollar mixed this morning after conflicting employment data. Nonfarm Payrolls rose by less than expected, registering a gain of 36K, versus the 146K expected, but the numbers were heavily skewed by particularly bad winter weather throughout much of the country in January. While on the surface, the number appears to show significant weakness in the labor market, and while payrolls in construction and transportation did decline, factory employment rose by the most since August 1998. The unemployment rate also unexpectedly dropped to 9%, far lower than the 9.5% anticipated by most economists. However, the overall labor force continued its decline, falling 504K in the last month, suggesting that much of the drop in the unemployment rate can be attributed to significant attrition from the work force. The so-called 'underemployed rate' also fell, dropping to 16.1% from 16.7% last month. While most expect the data will likely be revised next month with weather as an impetus of unreliability in reporting, the USD has gained as the US labor market continues to recover, albeit at a slower pace than most would hope for.
Continued demonstrations in the Middle East have kept global financial markets on edge, providing support for the dollar as investors remain unwilling to fully embrace risk assupmtion. Anti-government protestors in Cairo poured into Tahrir Square, the site of increasingly violent clashes, this morning calling for the departure of President Mubarak. While the current regime refuses to step down, estimates show that the Egyptian economy is losing more than $300M a day and shortages of food, water and basic supplies are endemic. With compounding economic and political pressure, Mubarak may be forced to step down sooner rather than later. While the palpable tension continues to worry investors, the Suez Canal remains open and operating at normal capacity.
The Euro fell against most of its major counterparts for the third day in a row as the region's debt concerns come back into focus. The common currency has shed more than two percent in the past two trading sessions, coming off the highest levels seen since the end of November when the Fed's QE2 program was first announced. The disparity between the Euro Zone's member nations has come under scrutiny as of late, with France and Germany demanding convergence in wage and tax regimes. The pushback has however been widespread as equal taxes in Ireland and Germany for instance, would wipe out Ireland's competitive advantage in attracting international businesses with low corporate taxes. Germany and France would also see retirement ages evened out, linguistic continuity, and a common system to manage troubled banks. With one in ten unemployed across the Euro Zone, the smaller economies in the region will likely bear the burden of the proposed reforms. With investors on edge from the continued unrest in the Middle East, and with the Euro Zone facing its own set of difficulties, trade in the common currency will remain volatile as it comes off its three-month highs.
Sterling is lower this morning on broad dollar strength, but its decline has been moderate. Despite an unexpected contraction in Q4 '10 GDP, the economic recovery in the UK appears to have gained significant momentum in the first month of the new year. Services and construction rebounded and manufacturing grew at the fastest pace on record. Price pressures also intensified across the economy as the BoE battles rising inflation, which has exceeded their two-percent target for 13 months running. With growing support for policy maker, Andrew Sentance's, call for a hike in interest rates, next week's BoE meeting will be closely monitored. In the interim, the pound will likely remain within its recent, higher ranges.
The Swiss franc was the biggest looser overnight, falling against 13 of its 16 major counterparts, and shed more than 1.5% against the USD. With global markets increasingly comfortable with the tense situation in the Middle East, the franc fell on signs that the US economic recovery is gaining momentum. However, any further declines in the franc will likely be slowed as its status as a proxy for market risk remains largely intact.
The CAD rose to its strongest level since May of 2008 this morning after stronger-than-expected labor data. The Canadian economy added 69K jobs in January, evenly split between full and part-time positions, beating expectations of an addition of 21K. However, the overall unemployment rate crept up to 7.8% from 7.6% as more people returned to the workforce. Higher oil prices have also supported the loonie, with crude up over 6% since demonstrations broke out in Egypt a week ago. With the strong data out Canada, the dollar will likely remain well supported above parity with the USD for the near term.
The currency most affected by the unrest in Egypt to date has been the South African rand with the riots in its fellow African nation causing the ZAR to stumble to a five-month low against the USD. The rand has suffered the biggest retreat against the dollar of more than 20 emerging-market currencies, as investors' appetite for riskier assets has been severely crimped since demonstrations began first in Tunisia more than a month ago.
Indications of Overnight rates:
10-Year Treasury Note Yield: 3.6276% +0.0788
Gold: $1348.50 -3.80
Crude Oil: 89.35 -1.19
Dow Jones Industrial Average: 12050.49 -0.10%
This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.