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Sterling advances against Euro and Aussie dollar as the BoE hold steady

US Dollar:

A long overdue correction was finally played out by the heavily battered dollar through Thursday’s session. For the short-term the ‘why’ is of little concern as the move has been made. For those that want to gauge the greenback’s course beyond the breakout effort, the fundamental catalyst behind the biggest one-day rally since October 19th is an imperative assessment. Running down the headlines for the trading session, there is no lack of potential catalysts. The economic docket provided a potentially easy explanation for the currency’s sudden rally. The release of the April 30th initial jobless claims happened to coincide with the sudden reversal for EURUSD and broad dollar-bid that was noted across the board. The 474,000 fillings on an annual basis for unemployment benefits marks the second biggest miss for the series on record which could have theoretically undermined expectations for growth and today’s Non-Farm Payrolls and growth in general, thereby playing to the dollar’s safe haven status. Yet, that assumption is dismissed when we look at the performance of the more risk-sensitive S&P 500 during the same period. The equities index was virtually unmoved after the release of the data.
DATA : Non-Farm Payrolls and Unemployment rate.    

What a contrast between the reaction to an ECB decision to maintain policy and the BoE coming to the same conclusion. Where the euro plunged, the sterling held fast and actually appreciated against a few counter-parts. Where speculation was still skewed to the hawkish pole for the shared currency there was little expecta¬tion for the MPC to deliver anything of value. Without a statement to offer transparency on the BoE’s outlook and expectations, there was nothing to move on. That said, next week’s Quarterly Inflation report could be a market-moving follow up.
DATA : PPI input.
No one could miss the plunge from EURUSD yesterday, but this euro tumble was not isolated to its pri¬mary counterpart. The primary currency tumbled across the board regardless of whether its pairing was against safe haven dollar and yen, high-yield Aussie and Kiwi dollars or regional equivalent pound. That suggests that the source of this fundamental hit was from the euro itself. The trigger for this dramatic decline was the Euro¬pean Central Bank’s rate decision. It may seem confusing why the currency would sell off when the monetary policy essentially left everything unchanged and President Jean Claude Trichet’s commentary suggested the group was still leaning towards hikes through the future. However, the market isn’t simply judging the change in approach form one monetary policy meeting to the next. Expectations play an even greater role in this scenario than actual results. Weeks ago, we had seen the 12-month interest rate outlook for ECB policy drop off after the group put in for its first hike but the euro held off from making a corresponding retracement. Yet, with rhetoric suggesting the next meeting would be another pass, the blind yield-run seems to be running out of steam.
DATA : No major data to be released today.


As we have rolled into Friday’s Asian trading session, we have seen the strong dollar rally and risk aversion move fade somewhat to allow profit taking. However, compared to EURUSD’s mild uptick, AUDUSD has put in for a full-blown rally. This move has been helped substantially by an RBA statement that suggested higher rates would “likely be required at some point.” Not really a revelation; but it came at the right time.