Strong NFP Report Boosts US Dollar

Eurozone Inflation Falls Below Zero

Headlines

  • UK trade deficit widens to 4-yr high – Exporters weary of slack Eurozone economy.

    ‘Grexit’ fears drive Euro lower – Greek PM defies EU austerity measures.

    GBP/USD sinks on super NFP report – 257K gain and 2.2% wage increase boost Dollar.

    Canadian unemployment declines – But CAD fails to hold onto gains.

    Sterling

    Sterling struggled to make any major gains against its most-traded currency peers on Friday morning due to fears that Britain’s trade deficit will continue to swell over the next few quarters. Data showed that the deficit widened to its worst level since 2010 during December as imports rose £10.2 billion quicker than exports. This brought the total trade deficit for goods and services to a disappointingly high figure of £34.8 billion for 2014, prompting the British Chamber of Commerce (BCC) to call for additional support to UK exporters.

    The BCC chief economist said that, due to the persistent fragility of the Eurozone economy, ‘much greater efforts are needed to develop a national strategy for boosting exports’. Many central banks have embarked on schemes to weaken their currencies in order to help spur exports over the past few years but it is unlikely that the BCC would anticipate the Bank of England resorting to those kinds of tactics at this juncture. It is far more likely that the government could introduce new measures to help make it easier for budding firms to access credit to help them grow.

    Euro

    The Pound rallied by around half a cent against the Euro on Friday afternoon and the Sterling to Euro exchange rate is now sitting just 50 pips away from a fresh seven-year high.

    It seems that a sturdy US labour market report dampened demand for the single currency because it threatened to bring the date of the Federal Reserve’s first piece of monetary tightening a little bit closer. Tighter lending conditions are liable to hurt the Euro at this moment in time because investors are extremely worried that the new Greek government’s anti-austerity drive could lead to the Hellenic nation’s expulsion from the 19-nation bloc.

    Over the weekend Prime Minister Alexis Tsipras announced a defiant rejection of the EU-imposed austerity measures that are deemed to be a requirement of the financial aid programme that is currently keeping Greece afloat. Unless the newly elected Syriza government can agree terms with the European Union, and the German contingent of finance ministers in particular, for a reshuffling of their country’s debt pile there is a substantial possibility that proliferating ‘Grexit’ fears could become a reality.

    This would be liable to have a massive negative impact on the single currency.

    US Dollar

    The ‘Greenback’ grew by around a cent against Sterling on Friday afternoon in reaction to the latest US labour market report.

    Astonishingly, US non-farm payrolls increased by a stupendous 257,000 in January, which, along with the other upbeat indicators in the report, was taken as a signal that the Fed could look to hike interest rates at some point in the first half of 2015. November and December’s NFP scores were both revised higher and a rise in the participation rate – reflecting perceived strength in the labour market – brought the unemployment rate slightly higher from 5.6% to 5.7%. Traders were especially impressed by data showing that average hourly earnings increased by a better-than-expected 0.5%, which brought the annual wage growth figure to an encouraging 2.2%.

    Canadian Dollar

    The Canadian Dollar experienced a temporary one-cent appreciation against the Pound on Friday afternoon in a knee-jerk response to a surprisingly sturdy set of Canadian labour market statistics. Data showed that the Canadian unemployment rate dipped from 6.7% to 6.6% due to a robust 35,400 rise in job creation. However, the ‘Loonie’ was unable to hold onto its gains because strong employment data south of the border in the United States was seen to raise the probability that monetary conditions will be tightened by the Federal Reserve at some point over the next four months and this weighed on the risk-correlated Canadian Dollar.

    Australian Dollar

    A one-cent gain over the weekend helped Sterling come within 20 pips of reaching a fresh five-and-a-half-year high against the Australian Dollar. The catalyst behind the sharp drop in demand for the ‘Aussie’ was the publication of a report showing that China – Australia’s largest trading partner – saw a decisive -19.7% contraction in imports, which was interpreted as a bearish signal for future trade between the two Asian-Pacific nations.

    New Zealand Dollar

    The Pound to New Zealand Dollar exchange rate jumped by around half a cent on Friday afternoon in response to the upbeat US jobs report, which was seen to ramp up the chances of an early rate rise from the Federal Reserve and was therefore interpreted as a negative for global risk sentiment.

Data Released Today

Euro-Zone Sentix Investor Confidence (FEB)