US Dollar:
Major foreign exchange currency pairs were little changed as investors pulled to the sidelines ahead of the US nonfarm payrolls data. This saw funds flow into the lower yielding currencies such as the dollar and yen as risk aversion crept back into global markets. Anticipation of US payrolls data is discouraging investors from risking major new positions, leaving markets in narrow ranges. A surprise rise in weekly jobless claims reported yester¬day also saw rising risk aversion to give the greenback a lift against both sterling and the euro. There's a lot riding on the US jobs data, because if the numbers are weak, people will be talking about a possible double dip recession in the US and further quantitative easing. Without a strong recovery in the labor market, you cant ex¬pect robust growth in the economy. Economists polled by Dow Jones Newswires expect Friday’s data to show the US economy cut 60k jobs in July, down from 125k in June and unemployment rate is predicted to rise to 9.6% from 9.5%. In the run up we have seen a pull towards the dollar, but if the data is worse than expected, we may see some short term weakness in the value of the buck.
Data 13.30: Nonfarm Payrolls expected –60k from –125k & Unemployment Rate expected 9.6% from 9.5%.
Pound:
The Pound is likely to consolidate in narrow ranges against the dollar and euro after the market saw little reac-tion to the Bank of England’s decision to leave its key interest rate unchanged at a record-low of 0.50% and its bond buying program at £200bn. Overnight caution prevailed ahead of the key US jobs data, with risk aversion dragging down the value of cable. Against the euro we have seen tight ranges traded as there has been little movement between GBP/EUR over the last few weeks. Looking at yesterday’s central bank decision, the BoE has been struggling to reconcile recent high inflation with a weaker growth outlook, and at this point it can do little more but to wait and see in which direction the uncertainty unfolds. It seems interest rates in the UK may stay low for longer and that should limit the downside for gilts as the bias is still to buy on dips.
Data 09.30: Manufacturing Production m/m 0.5% from 0.3% & PPI Input m/m expected –0.4% from 0.2%.
Euro:
There was a drop in the value of the single currency yesterday against the dollar as risk aversion saw initial flows of funds come out of the euro and into the buck as cautious trading appeared. But the euro did rally back as the ECB press conference rumbled on, with Jean-Claude Trichet highlighting the stress test of European banks as a positive, giving the single currency a boost. The ECB left interest rates unchanged at 10.00 as ex-pected. Looking ahead to today, we expect the FX markets to be fairly quiet ahead of the US jobs data later.
Data 10.00: Italian Prelim GDP q/q 0.4% from 0.5%. 11.00: German Industrial Production 0.8% from 2.6%.
General:
• Royal Bank of Scotland has seen its pre-tax profits leap to £1.14bn in the first half of the year from £15m a year earlier. Its operating profit swung to £1.6bn from a loss of £3.4bn in 2009.
• Oil prices are mixed in tepid trade Friday as dealers locked in profits ahead of the release of US data expected to show rising unemployment in the world’s largest economy.
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| GBP/USD | 1.5523 |
| GBP/EUR | 1.5911 |
| EUR/USD | 1.2059 |
| GBP/JPY | 136.99 |
| GBP/AUD | 1.7344 |
| GBP/NZD | 2.825 |
| GBP/ZAR | 11.5401 |
| GBP/CHF | 1.6689 |
| GBP/CAD | 1.6159 |
| GBP/SGD | 2.1482 |
| GBP/THB | 50.94 |
| GBP/HKD | 12.3402 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker
\n john.georgiou@voltrexfx.com