- USD strengthened against most majors after strong labor data
- EUR weakened against USD after disappointing Spanish debt auction
- BoE decided to keep rates unchanged
USD – The USD strengthened against most major counterparts, with the exception of the AUD and NZD, after US jobless claims dropped to the lowest level in 5½ years. The number of Americans filing new claims for unemployment benefits fell by 4,000, suggesting that labor market conditions are strengthening. US employers added 165,000 new jobs to their payrolls in April and hiring in the previous two months was stronger than expected. Additionally, the unemployment rate dropped to a four-year low of 7.5%. The jobless claims data could help ease investors’ fears of an abrupt slowdown in economic activity entering into the second quarter. US stocks opened lower, after a sustained rally that took the S&P500 index to record closing highs for the past five straight sessions. US Treasury yields remained little changed. Expect the USD to trade within its recent ranges, until the release of CPI and domestic retail data due next week.
EUR – The euro weakened against the USD after two days of gains, hurt partly by the weaker than expected Spanish debt auction that served as a reminder to investors that uncertainty still remains for the Eurozone’s weaker nations. The softer than expected Spanish bond issue suggested there was weak demand, resulting in bond dealers owning more than expected. ECB policymakers said that the central bank still has room to maneuver should the Eurozone continue to weaken. German industrial data beat market expectations. However, overall Eurozone economic activity remains sluggish, keeping alive expectations that the ECB may take action soon. Market participants expect the EUR/USD to trade within the 1.3243 level in the near-term, with support at the 50-day MA at 1.3007.
GBP – The sterling weakened against the USD, failing to hold onto gains made after the BoE kept its policy steady. However, British industrial and manufacturing output data rose more than expected in March. British industrial production rose 0.7% m/m, while manufacturing production rose 1.1% m/m, gathering momentum after a fall in oil and gas production. The BoE decided to leave interest rates unchanged at 0.5% and the asset purchase program at 375B pounds, opting to wait and see if recent initiatives will give the country’s fragile economy traction for recovery. Market participants expected the BoE to keep rates unchanged after Q1 GDP came in above the bank’s forecast. Interest rates are likely to remain on hold until BoE Gov. Carney’s arrival in July. Expect the GBP to trade within its 100-day MA at the 1.5519 level.
JPY – The Japanese yen slipped against its USD counterpart stemming from upbeat US data on jobless claims. A weakening yen is helping to narrow trade deficit in Japan, leading to expectations that its current account surplus in March would reach its highest level. Economists believe that the current account will remain in surplus this year as exports slowly recover which may reinforce Prime Minister Abe’s push to jerk the economy with a weaker yen and bold monetary easing. Market participants await the release of bank lending for April and current account surplus data this Friday.
Commodity Currencies – The CAD remained steady against the USD after briefly touching its strongest level in more than two months, building on a steady appreciation towards parity with its US counterpart ahead of Friday’s key domestic jobs report. New home prices in Canada rose 0.1% in March from the previous month, which was expected by the market. The BoC has long expressed concern about an overheating housing market, and its association with the rise in personal debt levels. As a result, market participants should not expect a rate cut in the near-term. Expect the CAD to trade within its recent ranges until the release of unemployment data due tomorrow. The AUD and NZD strengthened against the USD following strong labor reports in both countries. Australian employment increased by 50,100 in April, reducing the unemployment rate to 5.5%. The positive employment data contrasted with the RBA’s decision to cut interest rates to a record low of 2.75% earlier this week. New Zealand’s employment data saw a record 38,000 new jobs in the first quarter, pushing the jobless rate down to a 3-year low of 6.2%. However, the strength in the labor data was not considered convincing enough to alter the RBNZ’s outlook for steady rates this year. Market participants expect the AUD and NZD to trade within the 1.02-1.05 and 0.8423-0.8500 levels in the near-term.
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