v US Nonfarm Payrolls beat even the most optimistic estimations, gaining by 243k; unemployment ticks lower to 8.3%, the lowest rate in three years;
v UK economy continues to outperform expectations with PMI Services besting expectations; BoE still widely expected to increase asset-purchase program at their meeting next week;
v JPY sheds more than 0.5% against the USD as the encouraging economic data prompts investors to seek higher yields, alleviating pressure of an imminent BoJ intervention.
The USD is mixed this morning, gaining against the EUR and JPY, but falling further against its higher-yielding counterparts. The move comes after the all-important Nonfarm Payrolls report registered far better than expected at 243k versus the gain of 140k that was expected. The push higher was led by a jump in private payrolls, and in the manufacturing sector in particular. The gain was also enough to push the unemployment rate lower to 8.3%, the lowest rate in three years, down from 8.5% in the previous reading. The encouraging report has sent stocks and commodities higher as it shows the economy is weathering the turmoil from the Eurpean debt crisis and slowing global growth. At the same time, the reports have provided support for the dollar against many of its G10 counterparts as an improving labor market greatly reduces the likelihood of further Fed monetary action. After Fed Chairman Berenanke focused on frustratingly high unemployment in his testimony before Congress yesterday, any alleviation of immediate pressure will provide support for the USD, at least in the near term as prospects of QE3 fade.
The EUR pared overnight gains after the surprisingly strong labor market reports out of the US and as investors remain concerned with progress in Greek debt talks. A final deal on private sector involvement in Greek debt restructuring was supposed to be reached by today, but with the end of the week fast approaching with no plan yet brokered, waning confidence is weighing on the common currency. The CHF remained within a half of a percent of the 1.20 EUR/CHF peg set by the SNB back in September. With an upcoming parliamentary session devoted to scrutinizing the SNB's policies, investors could test the central bank's resolve amidst political discord. While there are rumors that the Swiss parliament could move to limit the size of the SNB's balance sheet, effectively limiting their ability to intervene in currency markets, undermining the Bank's credibility would be in no one's best interest.
The GBP is headed for a third weekly advance against the USD after a gauge of British services unexpectedly gained to a 10-month high in January. However, the sterling is off its overnight best against the dollar after a separate industry report said that the British economy has slipped back into recession. BoE member Adam Posen also told reporters this morning that he believes the BoE should expand their asset-purchase program next week to support the struggling economy, despite this morning's report suggesting that the British economy may be able to rebound without help from policymakers.
The JPY is sharply lower against the USD this morning after the strong NFP report in the US sent investors seeking higher yields. The yen is also lower on increased interventionist rhetoric from the BoJ and Finance Ministry with policymakers threatening to take decisive action should the yen appreciate further. While today's move lower alleviates some of that immediate pressure, investors will likely take the move lower as an opportunity to add long-yen positions, with a retracement of recent losses likely in the week ahead.
The Commodity Currencies have performed well overnight on the rebound in risk appetite. Encouraging economic data around the world has also pushed raw goods prices higher with oil rising to $97/bbl, copper up to $389/lb and consumables generally more expensive. The CAD gained to a fresh three-month high against the USD, supported by the higher price of oil and the surprising labor reports out of the US, the main destination for Canadian exports. The AUD and NZD also pushed back to the top of their recent ranges, supported by resurgent risk appetite with investors attracted to both currencies' relatively high yields. The ZAR proved to be the best performing currency against the USD overnight, surging to more than a four-month high supported by the rising price of industrial metals and reduced fears of global recession.
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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.