by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar drifted weaker at close to 1.49 against the Euro ahead of Friday’s monthly payroll report. The dollar weakened immediately after the release, but the Euro was gain unable to hold above the 1.49 level and weakened back to 1.48 later in New York as long positions were scaled back. The dollar gained some support from Microsoft’s bid for Yahoo which boosted confidence over potential US inflows.
The latest non-farm labour market report recorded a drop of 17,000 in January from a revised increase of 82,000 the previous month. There were further monthly declines for manufacturing and construction jobs while there was also a drop in government employment. This was the first employment drop for over four year. Although some caution is required as the last time there was a government fall, thee data was revised up the following month. The unemployment rate fell to 4.9% from 5.0% while the average earnings increase was held to 0.2%.
The ISM index for the manufacturing sector rose back above the 50.7 level from 48.4 the previous month and there was a strong reading for prices. The other components were less favourable, but the data will ease fears over manufacturing to some extent. Construction spending fell by a larger than expected 1.1% for the month as the residential sector continued to contract.
The data overall will maintain uncertainty over the US economy and will provide some support for both the bullish and bearish interpretations of US trends. At this stage, the evidence of recession is not convincing.
The Euro-zone PMI data edged slightly stronger form the provisional data, although there will still be a lack of confidence in the Euro-zone economy. The ECB stance will be very important for the Euro next week.
The Japanese currency was holding around 106.40 against the dollar in Asia on Friday with a lack of fresh incentives to guide the markets and caution ahead of the US data.
The yen was undermined slightly by increased hopes for a deal surrounding a rescue package over the US bond insurers, but there was still major uncertainty over the situation with Moody’s warning that credit ratings for the major bond insurers could be downgraded by the end of February.
The dollar dipped after the weak payroll data, but again found support below the 106.0 level with merger activity helping to boost demand for carry trade currencies.
Sterling again hit resistance close to 1.9940 against the dollar on Friday and weakened sharply to lows near 1.9660 as the weaker Sterling trend was compounded by a dollar recovery in New York. Sterling also weakened to near 0.7530 against the Euro.
The PMI report for the manufacturing sector fell to 50.6 in January from 52.9 the previous month which will increase fears over the UK economy and will maintain pressure for a 0.50% Bank of England rate cut next week. The potential impact will tend to be magnified by the firmer than expected US PMI report.
Sterling should still be able to gain some support from an improvement in risk appetite, especially if there is evidence of increased demand for UK property-related assets.
The franc again tested record levels beyond 1.0750 against the dollar on Friday. After initial gains following the US payroll report, the Swiss currency retreated in choppy trading and the franc dipped sharply to 1.0890 in New York. From highs near 1.60, the franc weakened to 1.6115 against the Euro.
The PMI index was firmer than expected at 61.6 in January from 61.3 previously which will alleviate immediate fears over Swiss growth trends.
The franc was held relatively firm in Europe even though stock markets rallied significantly, but optimism over increased merger-related activity undermined the Swiss currency in US trading.
The Australian dollar retained a firm tone in local trading on Friday with a challenge on the 0.90 level. There were no significant domestic developments with the Australian dollar still gaining support on yield factors with persistent speculation over an interest rate increase next week. The Australian currency also gained support from higher metals prices, although there was still caution over underlying risk tolerances.
The Australian currency was firm on the crosses and although it failed to push convincingly higher against the US dollar in New York, it sustained gains above 0.90.