All Eyes on US Non-Farm Payrolls Report

The ECB refrained from changing its monetary policy stance at its meeting yesterday despite warnings from the IMF and OECD recently about risks stemming from the rising Euro and falling inflation. Mario Draghi struck a dovish tone as he indicated that the central bank expected a prolonged period of low inflation and that if it dragged on too long, action would be taken. Across the Atlantic, markets keenly await the non-farm payrolls report today which could provide guidance to the Fed’s policy decision. Traders expect a pick-up in hiring last month and this should allay fears the Fed Chief had raised earlier this week. At home, market focus shifts to next week’s BoE policy meeting.

Pound Sterling – UK Markets

Services sector in the UK expanded at the slowest pace in nine months for March, as growth eased in new businesses, leading the Pound to weaken against the US Dollar in yesterday’s trading session. Moreover, an improvement in the US services activity for March suggested that recent data in the world’s largest economy looked distorted mainly due to unfavourable weather conditions, further boosting demand for the greenback. Early yesterday, Mark Carney, the BoE Governor, reiterated his previous comments that the UK labour market growth still continues to remain weak, although he indicated that the central bank might consider raising interest rates before 2015 general elections. Sterling has failed to register gains against the majors in today’s trading session following a decline in Halifax house prices for February. Additionally, investors remain cautious ahead of today’s US non-farm payrolls report which is likely to show an increase in the pace of hiring. In the forthcoming week, most of market attention will revolve around the BoE monetary policy meeting, especially considering that this week’s manufacturing, construction and services PMI reports showed deterioration for March.

US Dollar – US Markets

The greenback gained ground against the Euro yesterday, pushing the US Dollar to its highest level against the common currency in more than a month, after the ECB President stepped up his dovish rhetoric. The economic data in the US released yesterday was broadly disappointing, as both initial jobless claims and services activity data missed market expectations. Although the US ISM non-manufacturing PMI improved less than expected for March, the rise in activity suggests that that the initial phase of setback in 2014 for the world’s largest economy was seemingly due to rough weather conditions. The US Dollar is looking for direction against its global counterparts this morning as investors remain on the sidelines ahead of jobs data in the US. Market participants expect employers to add a healthy 200,000 jobs last month. If today’s data surprises on the upside, the greenback is likely to remain firm as it would boost market expectations for a quickened tapering of QE3. Additionally, it would provide some relief to the Fed Chief, Janet Yellen, who earlier this week indicated that the US economy and job market are still far from healthy and require support from the central bank’s low interest rate policy.

Euro – European Markets

The Euro was under pressure against the majors yesterday after the ECB Chief, Mario Draghi, indicated that policymakers deliberated on the prospects of using negative interest rates and resorting to asset purchases in order to stave off deflationary threats. However, the ECB, as expected, held its key interest rate at the record low of 0.25%. With ECB policymakers maintaining their dovish stance, the consistently slowing pace of inflation in the Euro zone seems to have considerably heightened prospects of the ECB resorting to unorthodox measures during the course of the year. Earlier, data released indicated that monthly retail sales unexpectedly rose for February, helped by food and non-food product sales. The upbeat monthly factory orders data in Germany has failed to provide a fillip to the Euro against the majors in today’s trading session. This has shifted market focus to today’s employment data in the US which has the potential to alter market sentiment going forward. Although talks of deflation in the Euro zone continue to dominate the economic landscape, markets will also eye Euro zone investor confidence and German industrial production data due next week.

Other Currencies – Highlights

The Canadian Dollar is trading higher against the US Dollar in today’s trading session ahead of the domestic employment report. The numbers are expected show a rebound in the pace of hiring while the unemployment rate is likely to remain unchanged for March. Additionally, the Ivey PMI will be watched by market participants for further direction. Along with domestic reports, markets will also focus on the US non-farm payrolls report to get further insights over the pace of recovery in the labour market of the world’s largest economy. Going forward, investors will keep a tab on some domestic housing sector reports due in the forthcoming week. In yesterday’s trading session, the Canadian Dollar moved higher against the greenback after data showed that Canada swung to a trade surplus for February, helped by the strongest monthly gain in exports over two years. The upbeat data suggests that signs of improving US economy and a weaker Canadian Dollar are helping to boost Canadian exports. However, the Canadian Dollar pared most of its gains later in the session.