by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar was confined to narrow ranges ahead of the US open on Friday. Both of the key US data releases were slightly stronger than expected, although the margins were measured which limited the impact.
Non-farm payrolls declined by 51,000 in July, the seventh successive decline, while the June data was revised slightly stronger to a decline of 51,000. Manufacturing and construction employment continued to decline while there was also lower financial-services employment. The unemployment rate rose to a four-year high of 5.7% from 5.5% according to the household survey.
The ISM index for the manufacturing survey was little changed at 50.0 in July from 50.2 the previous month and compared with consensus estimates of 49.0. There was a recovery in the employment index offset by a dip in new orders.
The data overall will maintain expectations of a very subdued economy which will struggle to gain any renewed strength, although there is again no evidence of a deep recessionat this stage. Theinflation data will be watched closely on Monday to asses whether there will be additional pressure for the Fed to tighten policy. This will be particularly significant ahead of the FOMC meeting on Tuesday.
The final Euro-zone PMI index for the manufacturing sector edged lower to 47.4 from the 47.5 flash estimate while German retail sales fell by 1.4% in the latest month. Overall confidence in the Euro-zone will remain weak which will unsettle the Euro, especially with Spanish conditions continuing to deteriorate rapidly. The dollar was unable to break 1.5510 and consolidatedaround 1.5560.
The dollar was unable to regain the 108.0 level in Asian trading on Friday with cautious trading ahead of key event risk.
Domestically, the Japanese Prime Minister announced a cabinet reshuffle and there may be a tighter fiscal policy, but this will not have a significant impact on the market with international trends dominant for the Japanese currency.
The yen secured some respite against the Euro during the day and this trend was a further barrier to US currency gains. The US currency failed to gain any support from the US data releases and settled around the 107.60 level in New York.
Reports that French power group EDF would pull out of a deal to buy British Energy did not have a significant immediate impact on Sterling, although it will be a negative factor as it will dampen potential investmentinflows into the UK.
The data releases will also be very important in the short term and the PMI index for the manufacturing sector also weakened to 44.3 in July from 45.9. This was the lowest reading for 10 years which will maintain recession fears following a very weak run of data over the past week.
The services-sector data will be important on Tuesday ahead of the latest Bank of Englandinterest ratedecision later next week. Markets will still be expecting the central bankto stay on hold in the short term to curb inflation and this will continue to provide some degree of Sterling support.
The Euro was unable to regain the 1.6350 level against the franc on Friday and tested levels below 1.63 before settling around 1.6320.The US dollarwas again unable to sustain a move above the 1.05 level against the Swiss currency, although retracements were limited.
Global growth fears increased on Friday while stock marketswere generally on the defensive which curbed near-term selling pressure on the currency. The Swiss currency, however, is still struggling to sustain strong demand.
There was further selling pressure on the Australian dollar in local trading on Friday with the currency dipping to lows near 0.9350 against the US dollar. Following a run of weak data over the past two weeks, there was some speculation that the Reserve Bank would move to an easier policy bias following the central bank policy meeting next week. The Australian currency has drawn key support from yield considerations and any move to an easing bias would be a substantial negative factor for the currency.
There was also further concerns over global growth prospects which put downward pressure on commoditypricesand this unsettled the currency. There were particular concerns over the Chinese PMIreport which weakened to below the 50.0 level and indicated the risk of a sharp slowdown in regional growth. The Australian currency retreated to a 10-week low of 0.93 in US trading.