v Nonfarm Payrolls surprise to the upside, registering +200k; unemployment ticks down to 8.5% on strong growth in private payrolls;
v EUR extends its decline to a 15-month low against the USD as investors increase bets that the region will continue to struggle with debt and the ECB will ease policy further in 2012;
v GBP remains weak against the USD, but has extended its recent gains against the EUR after yesterday's promising PMI Services, which registered at 54.0 versus expectations of 51.5.
The USD looks to close out the first week of 2012 on the upswing with the dollar index now at its strongest levels since November of 2010. Unlike in months past where the dollar's gains came almost exclusively as a result of bad economic news and the ensuing flight to safety, today's gains come on the back of positive labor market data. Nonfarm Payrolls gained by 200k versus 100k jobs last month and far better than the +155k forecast. The strong reading was paced by healthy gains in private payrolls, which in turn has pushed the unemployment rate to a two-year low at 8.5%. The USD gained following the positive reports as evidence builds that not only will the US avoid a double-dip recession, but that the economy may outperform many of its G10 counterparts this year.
The EUR extended its weekly decline against the USD this morning to nearly 2% as the common currency further splits from risk-on vs. risk-off sentiment. Over the past two years, this morning's strong labor numbers in the US would have provided support to the higher yielding EUR as investors accumulated riskier assets. However, with a number of the Eurozone members struggling with rising debt yields, looming credit rating downgrades, and an increasingly dovish ECB, the EUR's appeal is quickly fading. With no major data due to encourage investors otherwise, the EUR is limping into the weekend as investors begin to eye the ECB's next monetary policy meeting set for next Thursday. Expectations are quickly rising that if not at this meeting, the Bank will soon lower interest rates and possibly pursue a more formal quantitative easing program.
The GBP diverged yet again overnight, dropping against the USD, but gaining to a fresh 15-month best against the EUR. Data released this morning showed that British home prices extended their annual decline, suggesting continued weakness in the much maligned housing market. However, PMI Service data released yesterday registered better than expected at 54.0, marking a 5-month high, versus the anticipated reading of 51.5. While services proved surprisingly resilient in the fourth quarter, the push higher may not be enough to build momentum in GDP growth.
The JPY remained within its tight ranges against the dollar overnight, while reaching a new all-time high against the EUR. Despite continued rhetoric from Japanese officials regarding their support of a weaker yen and their willingness to intervene should they deem it necessary, the yen and Japanese securities maintain their safe-haven appeal. Finance Minister Azumi told reporters this morning that Japanese companies are having increasing difficulties with the appreciation of the yen against the EUR. Should the EURJPY rate continue to strengthen, the BoJ may be spurred into action sooner rather than later.
The Commodity Currencies are mixed this morning with the CAD and AUD both dropping as the ZAR and NZD gain. Raw goods are generally flat with oil steady at $101/bbl, gold remaining above $1600/oz and copper holding at $342/lb. The CAD pared yesterday's gains against its North American counterpart after a report showed that Canada added fewer jobs than expected last month and the unemployment rate ticked up to 7.5%. The AUD is also lower this morning as concerns that China's economy, the main destination for Australian exports, is quickly cooling weigh on Australia's currency. The ZAR on the other hand, is higher this morning against the USD and EUR for the first time in three days after the strong labor report in the US provides support for commodity prices.
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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.