by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar found support around 1.4650 against the Euro in European trading on Friday, but was unable to break through the 1.46 level and drifted weaker ahead of the payroll data. After initial gains following the release, the dollar weakened again in US trading and settled around 1.4650.
There was a 94,000 increase in non-farm employment for November after an upwardly-revised 170,000 the previous month. The unemployment rate held at 4.7% for the month as the labour-force survey showed a big increase in employment.
There was a stronger than expected 0.5% increase in average earnings for the month. The rise in earnings will cause some concern over inflation trends and the prices data next week will need to be watched closely next week to assess the underlying pricing trends. The impact will be lessened by the fact that the inflation data will be released after the Federal Reserve interest rate decision.
Elsewhere, the University of Michigan consumer confidence index fell to a fresh two-year low of 74.5 for November from a provisional 76.1 which will maintain unease over consumer spendingtrends. Overall, the data was not strong enough to discourage speculation of a 0.25% Fed rate cut next week, although speculation over a 0.50% rate cut should continue to fade.
TheEurois still gaining some support from the firm ECB stance following the council meeting yesterday with markets suspecting that monetary policy will be tighter in the Euro-zone that in the other major economies.
The yen was unable to strengthen back through the 111.0 level in Asian trading on Friday and drifted weaker towards the 111.70 level in US trading.
Risk tolerances remained generally stronger over the day with optimism that central bank actions to cut interest rates would help underpinstock marketsand cushion theglobal economyfrom a sharp slowdown. In this environment, there has been a greater willingness to sell the yen, although there are clear dangers of complacency given underlying credit risks.
Third-quarter Japanese GDP growth was revised down to 0.4% from 0.6% previously which undermined yen sentiment with markets continuing to assume that the Bank of Japan will keep monetary policy on hold for the next few months.
Sterling again tested support close to 2.02 against the dollar on Friday and, the US currency also failed to sustain the gains for the second successive today. Sterling recovered back to 2.0340 before drifting weaker again in US trading while the UK currency failed to hold corrective gains against the Euro and weakened back towards 0.7220.
Underlying sentiment towards the UK economy remains frail with further speculation that a serious deterioration in the housing sector will push the wider economy towards recession and trigger a further cut in interest rates early in 2008. Expectations of weaker yield support will unsettle the currency.
The Swiss currency weakened against the Euro on Friday and was unable to secure gains much beyond 1.13 against the US dollar as demand for defensive currencies faded.
The franc was undermined by the more durable recovery in risk appetite as global stock markets rallied again, although it will be dangerous to assume that risk tolerances will remain stronger given the underlying credit tightening.
The Swiss currency was also undermined slightly by speculation that the bank would not increase interest rates at next week’s quarterly meeting, especially after the firm ECB stance on Thursday.
The Australian dollar pushed to highs close to 0.88 in local trading on Friday and, although the currency initially struggled to sustain gains, the Australian dollar tested higher after the US payroll data as high-yield currencies generally secured buying support.
There were no significant domestic developments on Friday. The currency is still gaining some underlying support from an improvement in risk appetite as global stock markets attempted to push higher again. The Australian dollar was unable to hold levels above 0.88 with a dip lower in New York.