by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar pushed to highs around 1.3570 after the US employment data on Friday, but failed to hold the gains and weakened back to 1.3640 before consolidating around 1.3620. There were reports of substantial Euro buy orders on dips which undermined the US currency.
There was a 132,000 increase in US non-farm employment for June while the unemployment rate was unchanged at 4.5%. The May employment increase was revised up to show a 190,000 increase which will maintain the impression of solid growth in the economy. The hourly earnings increase of 0.3% will have a neutral short-term impact on interest rate expectations and the currency. Given the combination of moderate growth and steady inflation, the Federal Reserve should be content to leave interest rates on hold for the next few months.
There was a fall in manufacturing employment over the month while retail jobs also edged lower which will create some doubts over the strength of consumer spending. There is liable to be some downgrading of retail sales forecasts which will hamper the US currency.
The German manufacturing orders data was robust with a 3.2% increase for May to give a 7.5% annual increase. The data will ease any immediate fears over a negative impact on growth from Euro strength, especially as foreign orders rose strongly.
The yen remained under pressure on Friday with a retreat to 123.50 against the dollar and record lows around 167.80 against the Euro. Retail investment trends remain important and there has been further evidence of yen selling by Japanese investors. The increasing retail participation will maintain the threat of a sharp yen correction stronger and higher volatility levels.
Capital market volatility has eased over the past few days and this will tend to boost confidence in yen selling, especially with optimism over global growth conditions.
There are likely to be protests against yen weakness by Japanese officials, but a sharp increase in risk aversion will be required to trigger a significant reversal in market sentiment.
Sterling continued to edge lower against the Euro on Friday with lows around 0.6775, the lowest level for three weeks. The UK currency dipped to lows of 2.0060 against the dollar before a recovery to 2.0120 as the US currency was unable to sustain post-payroll gains.
The industrial data was firm with production rising 0.6% in May to give a 0.5% annual increase. Manufacturing output also edged stronger over the month which will ease fears that Sterling strength is undermining the industrial sector.
Markets will continue to monitor inflation and growth output closely over the next week to assess the potential peak level for interest rates.
The Swiss currency weakened to near 1.66 against the Euro and 1.2230 against the dollar before recovering back to 1.2170 as the US currency was unable to hold gains.
Headline unemployment fell to 2.5% in June from 2.6% the previous month, the lowest rate since 2002, while the seasonally-adjusted rate was unchanged at 2.7%. The labour-market data will reinforce near-term confidence in the Swiss economy.
There was evidence of stronger global carry trade activity during the day which undermined the Swiss currency. The tightening of carry trades will still tend to support the Swiss currency over the next few weeks and any renewed franc weakness from current levels would be likely to trigger renewed protests by the National Bank.
The Australian dollar found support below the 0.8550 level and pushed back to 0.8585 in US trading before edging lower again. There were no significant developments on the local economy and the Australian dollar was hampered to some extent by a narrowing of yield spreads over the US currency following strong US data.
Overall confidence in the global economy will maintain optimism over high-yield currencies and this will limit the extent of corrective retreats, at least in the very short term.