- Pace of U.S. hiring cools in December, jobless rate holds steady
- Sterling falls to 3 ½ week low versus US dollar, UK services PMI lowest since April 2009
- Dollar/yen hits highest level since July 2010
USD- The US dollar trimmed gains versus the euro and came off a near 2-1/2 year high against the yen after U.S. jobs data bolstered expectations the Federal Reserve will not be ending monetary stimulus anytime soon. The data came a day after minutes from the Fed's December meeting showed some policymakers were contemplating an end to their bond-buying program as early as this year, which sparked a rally in U.S. bond yields and the dollar. Nonfarm payrolls grew 155,000 last month, in line with market expectations and slightly below the level for November. The jobless rate held steady at 7.8 percent. Although the latest unemployment rate data has been broadly steady for four months now with decent employment growth, no downward progress has been made on the unemployment rate.
EUR- The euro slipped to a three-week low against the US dollar after minutes from the U.S. Federal Reserve indicated growing unease about the impact of further stimulus. With the euro zone's economic malaise and GDP expected to decline again this year, the single currency will likely remain in a holding pattern against the dollar over the next few months with the inability to strengthen in any significant way. EU policymakers have, however, given a strong commitment to protect and support the euro which should limit the downside for the euro.
GBP- Sterling weakened to its lowest in more than three weeks against the US dollar after weak UK services data and as the dollar rose broadly after some U.S. policymakers called for monetary stimulus to be slowed. Britain's dominant service sector shrank for the first time in two years in December, a purchasing managers' survey showed, suggesting the economy may have contracted in the fourth quarter of 2012 following a third quarter rebound. Markit's UK services PMI index fell to 48.9 in December, its’ lowest since April 2009 from 50.2 in November. It followed weak UK construction PMI, although manufacturing PMI beat forecasts. According to Markit, PMI figures suggested Britain's economy shrank 0.2 percent in the final quarter of 2012, a slightly bigger drop than most other private sector forecasts. A fresh fall in gross domestic product could raise the chances of the Bank of England restarting its stimulus program and may spark concerns about the possibility of ratings agencies downgrading the UK's prized top-notch rating.
JPY- The Japanese yen fell to a 2 ½ year low against the US dollar on mounting expectations the Federal Reserve will not be tightening monetary policy anytime soon. The yen has also struggled in recent months on increasing prospects the new government of Prime Minister Shinzo Abe will push to weaken Japan's currency and implement aggressive stimulus. Further weakness in the yen is likely as the US dollar remains firm for now.
Commodity Currencies- The Australian and New Zealand dollars eased against the US dollar following recent hefty gains but held near four-year peaks on the yen. The Australian dollar's downside continues to be limited as a result of strong iron ore prices. Prices are now up 73 percent from the lows in September, a big boon to national income as iron ore is Australia's single largest export earner. The New Zealand dollar also found extra support from strong dairy prices and Boxing Day spending. The Canadian dollar strengthened to a session high against the US dollar after Canada added a surprisingly robust 39,800 jobs in December. The figure pushed the nation’s jobless rate to a four-year low of 7.1 percent and countered recent signs of slowing economic growth.
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