•  US reports weak jobs data and awaits the end of the 2 day Fed meeting

•  Sterling remains strong following positive manufacturing data

•  Commodity currencies under pressure with China manufacturing data

USD – The US dollar fell to a 2-month low against a basket of currencies following weaker than expected US private –sector job growth.  Recent data showed April US private sector added 119,000 jobs but was still below expectations of 150,000.  Business activity in the Midwest unexpectedly contracted in April, its lowest level since September 2009.  Readings from the ISM-Chicago business barometer fell to 49 from 52.4 in March, short of economists’ expectations for 52.5.  Readings below 50 indicate contraction in the regional economy.  The dollar index .DXY, which measures the US currency value against its majors, dropped to 81.331, down 0.2% from its previous 81.546, its weakest level since February.   Expectations for the Fed to keep its stimulative monetary policies remain as they end their two-day policy meeting later today.   Investors are waiting to see if the Fed will push for more asset purchasing and await the US employment report released this Friday. 

EUR – The euro rose to its highest level in two-months with weaker than expected US private sector job growth and expectations that the Fed will continue its aggressive stimulus program ahead of the close of the two-day Fed policy meeting later today.  With the May Day holiday keeping Europe’s markets closed, large options expiries reported at 1.3200 could keep the euro at current levels.  However given the gloomy economic outlook in the euro zone, with recent poor data on unemployment, German retail sales and inflation figures, gains in the euro may be limited as market awaits the ECB’s decision to cut interest rates on Thursday.

GBP – The pound sterling rose to 2 ½ month highs against the USD following British manufacturing almost returning to growth in April and housing prices showing their largest annual gain in over a year, showing positive signs of an economic recovery.  Sterling could extend its gains in the days ahead if the Fed issues a soft-toned statement after the end to its two-day policy meeting later today along with positive data on British construction and services released Thursday and Friday.  Strong sterling gains stemmed mainly from higher than expected Markit/CIPS Manufacturing Purchasing Managers’ Index, which rose to 49.8 in April, an upward revision from 48.6 in March putting it closer to the 50 line which separates growth from contraction.  Although British manufacturing, which accounts for 10.5% of the UK economy, contracted by narrow margins in April, it was much less than analysts expected which economists say would also boost other parts of the economy, such as the services industry.  Economists say if GDP growth fails to gain traction in the coming months, the BoE’s monetary policy committee may extend its accommodative policy stance by announcing more asset purchasing this year.  This could happen by next week after the release of its quarterly economic forecast or after its new governor Mark Carney takes over in July.

JPY –The yen gained some ground but remained relatively flat against the USD as both Japan and the US had recent mixed data showing signs of a pressured economy.  With the yen being under intense pressure from the BoJ’s radical monetary stimulus measures, expectations of the currency to reach 100 still remain.  However, analysts believe if US economic data continues to disappoint, then dollar/yen ranges can track at 95-98.   

Commodity Currencies – The Canadian dollar pushed towards equal value vs. the USD, with its sixth straight day of gains ahead of a US Fed policy decision with dovish expectations according to strategists.  The Australian and New Zealand dollar were under pressure with recent data from China’s manufacturing sector slowing in April showing signs of a cooling growth in the world’s second biggest economy.  Still, the Antipodeans remain near 2 week highs while investors await key central bank events this week.

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