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  • US Dollar, Japanese Yen Down Ahead of US Non-Farm Payroll (NFP) Report - What to Expect

  • Euro Gains as Manufacturing PMI Hits 9-Month High - ECB Expected to Leave Rates Unchanged on Thursday

  • British Pound Mixed as Data Suggests UK Contraction Not as Severe in Q2

  • Swiss Franc Gains as Swiss Manufacturing Output Jumps

US Dollar, Japanese Yen Down Ahead of US Non-Farm Payroll (NFP) Report - What to Expect

The US dollar and Japanese yen both ended Wednesday mostly lower as demand for riskier assets rose amidst some surprising US economic releases. ISM manufacturing was better than expected for the month of June, as the index rose to a 10-month high of 44.8 from 42.8. However, this also marks the seventeenth straight month in which the index held below 50, signaling a continuing contraction in business activity, as new orders fell negative once again. That said, there were some signs of improvement as production rose above 50 for the first time since August 2008, supplier deliveries rose above 50 for the first time since September 2008, employment jumped to 40.7 from 34.3, and new export orders rose to 49.5 from 48.0. In other US economic news, NAR existing pending home sales rose for the fourth straight month in May, but only by 0.1 percent, which doesn't serve as a very promising signal for the housing sector.

Meanwhile, the ADP employment change fell by 473K in June, compared to a revised drop of 485K in May. Also, Challenger Job Cuts fell 9 percent in June from a year earlier, marking the first decline since February 2008. These results suggest that Thursday's release of US non-farm payrolls (NFPs) should reflect fewer job losses for the month of June. However, a Bloomberg News poll of economists shows consensus forecasts for NFPs to post at -365K, compared to -345K in May. That said, the range of forecasts is large, with the high at -150K and the low at -500K.

Looking to other leading employment indicators for June, such as initial jobless claims, the employment component of ISM manufacturing, and consumer confidence, there's no clear bias for these upcoming results and ultimately, NFPs shouldn't move to sharply in either direction. It may be interesting to see how the unemployment rate fares, though, as it is expected to rise to 9.6 percent from 9.4 percent. A sharper than anticipated increase could spark risk averse selling of equities and FX carry trades, which tends to benefit the US dollar and Japanese yen. On the other hand, a neutral reading could help risky assets to break higher amidst optimism that the US economic downturn has indeed bottomed.

Related Article: US Dollar Weekly Trading Forecast

Euro Gains as Manufacturing PMI Hits 9-Month High - ECB Expected to Leave Rates Unchanged on Thursday

The euro was one of the strongest currencies of the day after Markit Economics said that the final reading of their Euro-zone manufacturing purchasing managers' index (PMI) rose to a 9-month high of 42.6 in June from 40.7 in May. However, even with the increase, the fact that PMI failed to rise above 50 indicates that activity was still slowing for the thirteenth straight month. Nevertheless, a Bloomberg News poll of economists shows that the ECB will most likely leave rates unchanged at 1.00 percent on Thursday at 7:45 ET.

Where the currency ends the day, though, may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Many of the details of the ECB's 60 billion euro covered bond buying program haven't been revealed, including when they will buy them, which specific bonds they will buy and from whom they will buy them. Furthermore, any comments regarding the future of interest rates in the region, including whether 1 percent should be considered the floor, as well as changes to the economic outlook could have a heavy impact on euro trade.

Related Article: Euro Weekly Trading Forecast

British Pound Mixed as Data Suggests UK Contraction Not as Severe in Q2

The British pound rose versus the US dollar and Japanese yen, but fell against currencies like the Canadian dollar, Swiss franc, and euro a day after the Office for National Statistics revised their UK GDP readings down to -2.4 percent for the first three months of the year, matching the Q3 1979 low. Even worse, the year-over-year rate of GDP growth was revised all the way day to -4.9 percent, which is the lowest since recordkeeping began in 1956. The results leave GDP at the lower end of the Bank of England's past projections, and suggest that the central bank's forecasts were perhaps somewhat optimistic. However, the latest UK manufacturing PMI results from Markit Economics show that the contraction in the sector slowed for the fourth straight month, as the index remained below the neutral point of 50 but rose to 47.0 from 45.4. The data indicates that the recession is still taking its toll and GDP may remain quite negative in Q2, but may not be as bad as in Q1.

Related Article: British Pound Weekly Trading Forecast

Swiss Franc Gains as Swiss Manufacturing Output Jumps

The Swiss franc ended Wednesday up against most of the majors as SVME PMI rose for the fourth straight month in June to an 8-month high of 41.8 from 39.8. A breakdown of the report shows vast improvements in output, quantity of purchase, and purchase prices, but declines in employment. Also, this was the tenth straight month in which PMI held below 50, signaling a continued contraction in activity, albeit at a slower pace. Overall, a recovery in Switzerland still seems to be contingent upon recovery in the economy of the nation's biggest trade partner, the Euro-zone, as exports remain very weak.

Related Article: Swiss Franc Weekly Trading Forecast

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Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com