US Non-farm Payrolls on Radar

As expected, the BoE and the ECB refrained from changing their policy stance in yesterday’s monetary policy meetings, thereby propelling Sterling and the single currency beyond their crucial thresholds against the greenback. Moreover the ECB Chief, Mario Draghi, sounded cautiously optimistic about the economic situation and ruled out an immediate possibility of slashing deposit rates into negative territory. Meanwhile all eyes in today’s session will stay focused on the US non-farm payrolls report. With the labour market being the focal point of the Fed’s future policy moves, today’s report will act as a catalyst for currency markets near term trend.

Pound Sterling – UK Markets

The Pound concertedly breached key resistance levels and toppled the 1.55 mark against the US Dollar yesterday, as the recent string of upbeat domestic economic releases kept the prospect of further easing at bay. In tune with the recent improvement seen in the British economy, a majority of the MPC members voted to keep interest rates and the size of asset purchases unchanged at the BoE’s monetary policy meeting. However, Sterling was rather volatile against the Euro in yesterday’s trading session. Data just out has revealed that trade deficit in the UK narrowed for April, as exports outpaced imports, capping the downside risks for the Pound in today’s trading session. Yesterday’s Lloyds employment confidence report also showed an improvement for May, shifting focus to the next week’s employment report for further clarity on the job outlook. Industrial production data is also due next week and will be closely evaluated for gauging the strength of the manufacturing sector. With a light domestic calendar today, markets are likely to keep an eye on the US non-farm payrolls for further direction to risk appetite.

US Dollar – US Markets

In yesterday’s trading session, the US Dollar retreated sharply against the Euro and the Pound after both the ECB and the BoE maintained the status quo on their monetary policy stance. However, the greenback is trading almost flat against its major peers this morning, as market players remain on the sidelines ahead of the crucial non-farm payrolls report due later today. Data released yesterday revealed that the number of Americans claiming jobless benefits declined last week, mostly in line with market estimates. Against this backdrop, markets anxiously await the non-farm payrolls report later today to unearth a clearer picture about the US labour market outlook, given its growing influence over the monetary policy stance. Market participants expect the pace of hiring to remain steady for May. However, any negative surprises should lead to a weakening of the US Dollar, as it will lower the possibility of the Fed rolling back its massive stimulus measures in the near term. Additionally, next week’s industrial production, retail sales and Reuters/Michigan confidence index will be closely tracked for a clearer picture of the overall economic landscape. Also, a raft of Chinese economic data due over the weekend will prove crucial for risk appetite.

Euro – European Markets

Risk appetite received a boost yesterday after the ECB, on expected lines, maintained the status quo at its policy meeting. Moreover, the ECB Chief, in his post meeting press conference, delivered no major surprises in dealing with the region’s debt crisis, as he sees gradual recovery later this year. This helped the common currency to breach the crucial 1.32 mark against the US Dollar. Additionally, Spain witnessed strong demand at its triple dated bond auction held yesterday, suggesting fairly good appetite for the nation’s bonds. However, a spate of poor economic data in the Euro zone showed no signs of abating, as data released yesterday indicated that factory orders in Germany declined sharply for April. With the recent numbers offering dismal results, today’s industrial production data from Germany is not expected to provide any positive surprise. In the midst of continuing economic weakness, the ECB also lowered its 2013 economic growth forecast for the region. With the common currency trading almost flat against the US Dollar in today’s trading session, jobs report in the US will provide further direction to market sentiment.

Other Currencies – Highlights

The Canadian Dollar registered gains against the US Dollar in yesterday’s trading session after data showed that Ivey Purchasing Managers’ Index in Canada surpassed market expectations for May to reach its highest level since March 2012. However, the Canadian Dollar has taken a breather and is trading in a tight range against the greenback this morning. In today’s trading session, market participants are looking forward to the Canadian employment report for further insights into the economic outlook. With data released early during this week offering encouraging signs, today’s report is also likely to maintain an upward momentum. Apart from the domestic data, the Canadian Dollar is also likely to be influenced by the US non-farm payrolls report later in the day. Going forward, housing starts data in Canada due next week will be closely watched, given a surprise jump in building permits reported earlier this week.