US Payrolls to Close the Week

Market hopes of continuing monetary easing in the US following weak jobless claims data helped high yield currencies to outperform yesterday. The policy meetings in Europe also played out as per the script, as the ECB and the BoE left their stance unaltered, with policymakers seemingly waiting for further signals in order to decide future course of action. With an eventful week drawing to an end, today’s non-farm payrolls report in the US is likely to keep traders on the edge of their seats. Although services activity in the UK appears to be compensating for broader economic weakness, next week’s industrial production data and the NIESR GDP estimate will likely offer greater clarity over whether the British economy escapes a recession.

Pound Sterling – UK Markets

The Pound came off its lows against the US Dollar yesterday after dismal US jobless claims data dampened fears of an early withdrawal of current monetary stimulus by the Fed. Additionally, the BoE refrained from restarting its asset purchases programme, as per broad market expectation. Despite the UK Chancellor providing considerable leeway by tweaking the BoE’s inflation remit, MPC members held back from embracing unorthodox monetary policy measures amid mixed signals over the health of the UK economy, including evidence that the service sector was faring better than earlier feared. In the midst of no major domestic events scheduled today, markets are expected to pay passing attention to the Chief Economist, Spencer Dale’s speech due later today for some insights into the influence of the BoE’s current monetary policy stance on the British economy. Going forward, industrial production and trade balance data due next week should be tracked closely for further insights into the state of the nation’s recovery in the first quarter of 2013.

US Dollar – US Markets

The US Dollar lost steam against the Pound and the Euro yesterday, as a higher than expected rise in the number of people claiming jobless benefits in the US heightened speculation that the Fed would continue with its ultra loose monetary stance longer than anticipated. Additionally, aggressive monetary easing by the Bank of Japan supported gains in high yield currencies. The greenback is trading in a tight range against the majors in today’s trading session as traders hold back ahead of non-farm payrolls data, which is likely to show a slower pace of job additions for March. With the recent employment report surprising on the downside, further confirmation of this trend in today’s data would likely bring the US Dollar under further pressure. Meanwhile, the Fed Vice Chairman opined that the central bank should alter the pace of the bond buying programme based on the changes in economic outlook. However, with the US economy feeling the pinch of sequestration in the recent past, it remains to be seen whether the Fed will alter its monetary stance going forward.

Euro – European Markets

Despite the recent string of PMIs and employment releases pointing towards the appalling state of the economy, the ECB decided to hold fire, leading the common currency to nudge higher and breach the 1.29 mark against the US Dollar yesterday. With the Eurozone economy under threat of slipping into a deeper contraction, the ECB Chief reiterated his dovish comments that more monetary easing steps may be on the way to stimulate growth, if required. Further giving a helping hand, Spain witnessed strong demand for its bonds at an auction held yesterday, despite market concerns over the financial crisis in Cyprus and the political stalemate in Italy. Moreover, weak jobless data in the US spurred demand for the Euro. The common currency is trading range bound against the US Dollar this morning as traders remain on the sidelines ahead of US non-farm payrolls data scheduled for release later today. Traders will also keep an eye on Eurozone retail sales data due later today that is likely to show a monthly decline for February, further suggesting that all is not well in the region’s economy. Additionally, German factory orders will be gauged for insights into the nation’s recovery.

Other Currencies – Highlights

The Canadian Dollar managed to garner traction against its US counterpart yesterday, as dire US initial claims data fuelled speculation that the Fed would continue with its aggressive monetary easing stance. Meanwhile, the Canadian Dollar has pared some of its gains against the greenback this morning ahead of a flurry of domestic economic releases due later today. Markets are keeping an eye on employment, manufacturing PMI and trade data for indications on broader economic trends and further insights into the nation’s economic prospects. In today’s report, the Canadian unemployment rate is expected to remain steady at 7%, marking the lowest level since December 2008. Additionally, US nonfarm payrolls data due later today may also sway market sentiment.