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Non farm payrolls in line with expectations

Sterling rose against a broadly weaker dollar yesterday, tracking a rally in the euro after an agreement between France and Germany on proposals to help solve the euro zone crisis raised confidence in currencies perceived to be higher risk. Unfortunately overnight we have seen most of these gains eroded. The pound was also supported by better-than-expected services PMI data, although it remains vulnerable to selling due to an overall gloomy view of the UK economy. France and Germany on Monday agreed on a series of reforms to address the euro zone debt crisis what will be presented to EU President Herman Van Rompuy later in the week.  Many in the market are hopeful this may be the week that will mark a turning point in solving the debt crisis, which may put upward pressure on the euro. Sterling strengthened from around 1.1640 yesterday to currently trade around the 1.1700 handle.
 Data 08.00: Halifax HPI m/m: Actual -0.9% from 1.2% previously.


German Chancellor Angela Merkel and French President Nicolas Sarkozy strengthened their push for new rules to tighten euro area economic cooperation as Standard & Poor’s said it may downgrade credit ratings across the region. The leaders of Europe’s two biggest economies responded in a joint statement late yesterday that they “took note” of the move by S&P, while both countries “reinforce their conviction” that common proposals for closer fiscal union in the European Union will “strengthen coordination of budget and economic policy,” and promote stability and growth. Germany and France risk losing their AAA credit ratings in a review of 15 euro nations for possible downgrade, S&P said. At an earlier meeting in Paris, Merkel and Sarkozy said both countries were aligned on backing automatic penalties for deficit violators and locking limits on debt into euro states’ constitutions. Investors say such moves might pave the way for the European Central Bank to do more to fight the debt crisis.
Data 11.00: German Factory Orders m/m.


While Friday's headline NFP number was in-line above consensus forecasts of 140k on expectations of 120k the data in the report was less inspiring. Currently the 12-month average for new private job growth is just under 160k which is less than the latest jobs report. The drop in unemployment rate initially looks promising but the details are less inspiring. When digging through the numbers you can find 315k job seekers dropped out of the work force, allowing for the unemployment rate to fall to 8.6% from 9.0%. Yes, the jobs data does show an improvement from the beginning of the year but last week's release points to slow gains in US employment. While the Fed seeks price stability it also has the task of bringing the US to full employment. As this goal goes unfulfilled the risk is for additional quantitative easting (QE) by the Fed. Yesterday sterling rallied briefly against the dollar to reach 1.5710 before slipping back to currently trade around the 1.5630 level.
No major data due today.


•    The Australian dollar fell against all of its major peers after the Reserve Bank of Australia cut interest rates by 25 basis points for a second-straight month.  The RBA reduced its key rate to 4.25 percent in its first back-to- back easing since February 2009.


























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