Dollar rallied against a basket of currencies on Friday as the stronger-than-expected reading of U.S. jobs data supported expectations that the U.S. labour market and the economy were indeed improving. U.S. non-farm payrolls fell 247,000 in July after a 443,000 loss in June and less than consensus forecast of a 320,000 drop. With fewer workers being laid off, the unemployment rate eased to 9.4% in July from 9.5% the prior month.
In the past, positive economic news would weaken the dollar as investors flocked to riskier assets, however, this market's perception had changed after the strong payrolls report Friday, the U.S. currency gained strongly on signs of an economic recovery as investors speculated that the Federal Reserve will raise interest rates sooner rather than later. Futures on the Chicago Board of Trade indicated a 74% chance that the Fed will increase the target lending rate from its range of 0.00-0.25% by its January meeting, compared to 66% a month ago. Furthermore, U.S. President Barack Obama said on Friday that the latest unemployment figures provided further evidence that ‘the worst may be behind us’. However, U.S. will not have a true recovery as long as the country is losing jobs, he added.
Euro briefly rose to 1.4415 against the dollar after the release of upbeat U.S. jobs data, however, the single tumbled to as low as 1.4154 as a shift in mindset among currency investors, who are now buying dollar on good U.S. economic data. Earlier, German industrial production came out 0.1% drop in June, weaker than the expectation of 0.7% increase, however, the reading in May was upwardly revised to 4.3% from 3.7%. Market reaction to this data was little.
The British pound hit this week’s low of 1.6650 versus the greenback on Friday New York morning after brief bounce to an intra-day high of 1.6837 immediately after the release of better-than-expected U.S. non-farm payrolls. The pound was under massive selling pressure versus the greenback after the Bank of England surprised markets by expanding its asset-purchasing program by 50 billion pounds to 175 billion pounds to boost the nations economy and cited the state of the U.K. economy remains ‘fragile’ on Thursday. In addition, Royal Bank of Scotland Group Plc, the U.K.’s biggest government-controlled bank, posted a net loss of 1.04 billion pounds compared to 827 million pounds a year ago on Friday also weighed on sterling.
The U.S. currency soared to 97.79 versus the Japanese yen in New York trade as the yield advantaged of 10-year Treasury notes increased to 2.42% points, the widest level since November. The yen also fell against higher-yielding currencies with eur/jpy rising from 136.53 to 138.72, aud/jpy surged from 79.49 to 81.92 while gbp/jpy rallied from 159.00 to 163.05.
Data to be released next week include Japan current account, machine orders, trade balance, economic watchers survey, machine tool orders on Monday, Japan BoJ rate decision, consumer confidence, Australia NAB business confidence, U.K. BRC retail sales, RICS house prices, German CPI, WPI, U.K DCLG house prices, trade balance, Canada housing starts, U.S. wholesale inventories on Tuesday, Japan CGPI data, Australia Westpac consumer confidence, Japan industrial production, capacity utlisation, U.K. claimant count, ILO unemployment rate, eurozone industrial production, U.S. trade balance, Canada trade balance, new housing price index, U.S. Fed budget and rate decision on Wednesday, German GDP, Switzerland PPI, eurozone GDP, U.S. import and export price index, jobless claims, retail sales on Thursday, Japan BoJ minutes, eurozone HICP, U.S. CPI, capacity utlisation, industrial production, and University of Michigan confidence survey on Friday.