Eyes across the Atlantic

With the US government shutdown coming to an end, the world’s largest economy is set to release the much delayed and overtly anticipated jobs report today. Although the report is expected to show a rise in non-farm payrolls for September, investors will take the positive print with a pinch of salt, particularly in the aftermath of the government shutdown that is likely to hamper the labour market recovery. In the UK, data just out has indicated that the government continued to borrow for September, albeit at a slower pace. With a slew of important economic data lined up for the week, markets are looking forward to tomorrow’s BoE policy minutes for further direction on the monetary policy front.

Pound Sterling – UK Markets

The Pound pared some of its gains garnered over the past few days and traded broadly lower against the US Dollar yesterday, as traders remained cautious ahead of the all important US labour market data later today. However, the downside in Sterling was limited after yesterday’s housing report showed a bigger than expected drop in demand for previously owned homes in the US. Meanwhile, amid concerns that government policies are stirring up house prices in the UK, a member of the BoE Financial Policy Committee, Martin Taylor, argued that it is not central bank’s mandate to regulate house prices. In the meantime, Sterling has changed little against the majors this morning after the public finances report just out showed that the UK government continued to borrow for September, though less than expected. Against this backdrop, the Chancellor’s Autumn Statement in the first week of December 2013 will be closely watched for further clarity on the fiscal front. Also, Sterling investors are keenly eyeing tomorrow’s BoE policy minutes for hints on future policy moves.

US Dollar – US Markets

Ahead of today’s crucial labour market report, market participants have adopted a wait and watch approach, resulting in the greenback trading in a tight range against the Euro yesterday. Markets forecast non-farm payrolls to rise at a faster pace for September, with the unemployment rate remaining stable at 7.3%. However, the reaction to a positive number could be muted, as any optimism in these numbers could be watered down in this month’s data on account of the prolonged shutdown in government agencies. Meanwhile, rising mortgage rates in the US are negatively influencing people’s home buying preferences, as indicated by the downbeat existing home sales report released yesterday. Additionally, the President of the Chicago Fed opined that the Fed would need several good economic reports before it could start tapering QE3. The greenback has continued to look for direction against the majors in today’s trading session. While the unemployment report will grab most market attention today, the Richmond Fed manufacturing survey is also expected to generate modest market interest, especially in the wake of recent mixed regional manufacturing prints and ahead of Thursday’s manufacturing PMI data.

Euro – European Markets

After strengthening against the greenback over the past few trading sessions, the single currency searched for direction against the US Dollar yesterday amid a lack of any decisive domestic economic triggers. The upbeat German producer price inflation numbers, the only relevant domestic economic data for the day, also failed to provide any respite to the common currency against the greenback. In the meantime the Bundesbank, in its monthly report, indicated that the German economy grew at a slower pace in the third quarter of 2013, highlighting the uneven nature of the region’s economic recovery. Meanwhile, the Euro is trading in a tight range against the US Dollar in today’s trading session ahead of the US non-farm payrolls report later today, which is expected to show that companies added more employees to the workforce in September. With another day of light European economic news, the Euro will take direction from global economic news flows going forward, ahead of Thursday’s domestic PMI reports. Any positive surprise in these numbers will provide the Euro-US Dollar with further impetus, notably on the back of improving fundamentals in Europe and not due to a weaker greenback.

Other Currencies – Highlights

The Swiss Franc has failed to gain traction against the majors this morning. The recent “risk-on” sentiment in markets has taken a backseat, as traders await the release of the US labour market report later today. With non-farm payrolls expected to show an increase and the unemployment rate projected to remain steady for September, safe haven currencies are likely to remain supported in today’s trading session, as it will bring forward market expectations of QE3 tapering in the near term. Meanwhile, data released earlier in the day showed a further expansion in Switzerland’s trade surplus for September on the back of improved exports. However, the upbeat trade data had little effect on the movement of the Swiss Franc, as investors remained glued to the US jobs data for further direction to risk appetite. With no major domestic economic data on tap for this week, news flows emanating from both sides of the Atlantic will determine direction of the Swiss Franc against the majors.