USD - The dollar is sharply lower headed into the weekend as disappointing economic data has led investors to increase bets on further Fed easing. The much anticipated nonfarm payrolls report was released this morning far short of expectations, dropping to 96K from a downwardly revised 141K in the previous reading. At the current pace of population growth, the economy must add 150K jobs each month just to maintain current employment levels. The shortfall was led by a significant drop in private payrolls, which fell nearly 60K from July's reading. The manufacturing industry suffered the heaviest losses, shedding 15K jobs versus an expected addition of 10K as both foreign and domestic demand for American made goods dried up. Nevertheless, the unemployment rate ticked lower to 8.1% from 8.3% last month. However, the declines are reflective of a significant drop in the number of labor market participants with an estimated 368K people no longer looking for work. Consequently, investors have begun to price in further monetary stimulus from the Fed with the FOMC set to meet during the middle of next week. The dollar index has thus tumbled to a fresh five-month low at 80.23, with further declines likely in the immediate term.
EUR - The euro soared to its best levels against the dollar since the middle of May on optimism that Eurozone policymakers are taking the necessary steps to backstop the economy. Earlier this week, ECB President Draghi announced an unlimited bond-buying program targeted at lower sovereign yields in Spain and Italy. Current bond market conditions are reflective of the improved optimism with the 10-Yr Spanish and Italian yields falling to 5.66% and 5.08% respectively. Draghi's intent is to keep the Eurozone intact by reducing borrowing costs in the region's struggling economies so that the Bank's monetary policies have a similar impact on all members of the currency bloc. While Draghi's moves have certainly been bold, it remains to be seen if lower borrowing costs will in fact foster a return to growth in a country like Spain with nearly 25% of the population unemployed and the economy having now been in recession since Q4 of last year. However, somewhat surprisingly Draghi avoided setting yield targets in an attempt to deter financial markets from testing any preset limits. The common currency has also been helped higher this morning as speculation rises that the Fed may pursue a third round of QE in the coming months. The next point of resistance for the EUR currently stands in the mid 1.28's, the 200-day MA.
GBP - Sterling is mixed this morning, falling against the EUR, but breaking out of its recent ranges against the USD. The pound found initial support as UK industrial production unexpectedly recouped last month's losses, gaining by 2.9%, far better than the 1.5% that was expected. The better-than-expected data has led investors to further pare expectations of BoE monetary easing. Nevertheless, optimism over the ECB's bond-buying program has kept the pound towards the lower end of its recent ranges against the EUR.
JPY - The yen is nearly 1% stronger against the USD this morning, reaching back towards its recent lows near the 78 handle. The increased expectations of QE3 in the US have added to the yen appreciation with the yield gap between US and Japanese securities likely to narrow going forward. However, further strength may be capped as investors fear BoJ intervention
Commodity Currencies - The commodity linked currencies continue to outperform their peers this morning on the sharp improvement in optimism. Raw goods are mixed, but most tellingly copper, a metal used in a wide array of industrial applications, is more than 3% higher at $363/lb. The CAD gained for the second straight day as further Fed stimulus will provide support for Canadian exports. However, gains in the loonie have been limited by the immediate impact of today's disappointing jobs numbers out of the US - Canada's main trading partner. The AUD and NZD are also both higher as the risk-on trade encourages investors to seek their attractive yields. Nevertheless, gains may be limited by growth concerns in East Asia.