•  Euro at session highs after US data release

•  UK avoids a triple dip recession following better-than-expected report

•  JPY slides on pace for its biggest one-day-rise


USD – The US dollar sank lower against most major currencies with the exception of the Japanese yen as the fret of further bond purchases in the US was subsequently confirmed by the Feds earlier this week. The Feds stated, after a policy meeting on Wednesday, that it will continue buying $85 billion in bonds each month to keep interest rates low and spur growth, adding that it would step up purchases if needed to protect the economy. Since the announcement, the EUR gained 0.39% against the USD. However, the dollar rose 1.3% against the yen, hitting a session high of USD/JPY 99.26, after reports showed US employment rose more than expected in April. The Labor Department stated that payrolls rose 165K in April, above the consensus of 140K.  Even more notable, revisions added 114K to the prior two months. While consensus was flat, the additional jobs have actually cut the unemployment rate down to a noteworthy four-year low of 7.5%. Still, some details of the report remained consistent with a slowdown in economic activity. Construction employment fell while manufacturing payrolls were flat. Expect the dollar to trade in lower ranges through the weekend as the news of further easing in the US has yet to complete its course.

EUR – The euro rose to session highs against the US dollar following the release of US services and factory data and the European Central Bank’s announcement to cut interest rates by 25 basis points to 0.50% yesterday.  The euro had its largest drop in two weeks vs. the USD yesterday which stemmed from ECB President Draghi’s comment that policy makers have an “open mind” on reducing their deposit rate below zero for the first time. This was quickly recovered after ECB Governing Council member Ewald Nowotny said that markets over-interpreted the discussion and that there is no plan to do so.

GBP – The sterling rose against the US dollar following data from the UK that the services sector grew the fastest in eight months reporting a rise in PMI to 52.9, higher than its expected 52.4. Other surveys this week reported UK manufacturing and construction sectors performed better-than-expected in April, rising for the fourth consecutive month to 52.1 from 51.0, signaling relief for the government that the fragile recovery seen in Q1 is picking up its pace.  With the economy avoiding a triple dip recession, economist believe that the BoE will not be likely to ease policy further by extending its QE bond buys when they meet next week.  

JPY –The Japanese yen slid over 1% against the US dollar, on pace for its biggest one-day-rise in two weeks after a surprisingly strong US jobs data report. BoJ Governor Haruhiko Kuroda says that the central bank’s monetary easing measures are necessary to end the over-a-decade long deflation and that the economy will likely start to gain momentum later this year. His campaign to double monthly bond purchases to reach its 2% inflationary target, known as “Abenomics”, has helped push up stocks and weaken the yen. The yen is currently trading in the 98-99 ranges as Japan celebrates their Golden week holiday.

Commodity Currencies – The CAD slightly weakened against the USD after employment data in the US rose more than expected in April.  The CAD also weakened after the Finance Minister Flaherty announced that as of June 3, Stephen Poloz will take on the role of BoC governor for a seven-year term.  The uncertainty around his views on monetary policy, financial stability, and the Canadian economic growth outlook caused an initial weakening in CAD.  Market participants will look toward the upcoming PMI data being released on Monday.  The AUD and NZD held steady against the USD as the market speculates the Australian central bank could cut rates next week.  The RBA will hold its monthly policy meeting next Tuesday. Financial markets imply a little more than a 50/50 chance of a rate cut next week.  The NZ government’s monthly debt and data on unemployment are due next Monday and Wednesday, respectively.