US Non-Farm Payrolls Disappoint

The keenly awaited US jobs report for January recorded another miss and barely any revision to December’s alarmingly weak payrolls. Whilst the US economy continues to recover, albeit at a slower pace, the recent set of mixed economic data has heightened speculation over the Federal Reserve’s next policy move. The new Fed Chief, Janet Yellen’s first testimony to the House tomorrow will be closely scrutinised for further insights. At home, industrial production numbers surprised on the downside on Friday, whereas the NIESR estimated a faster pace of economic growth for three months through January. In the Euro zone, today’s EU Sentix investor confidence has shown an unexpected improvement for February.

Pound Sterling – UK Markets

The weaker than expected domestic industrial and manufacturing output reports had little effect on the Pound against the US Dollar on Friday, as upbeat UK trade deficit numbers for December supported the currency against its peers. However, disappointing US labour market report released later in the day lifted Sterling against the greenback. Additionally, the positive assessment of the British economy by the NIESR for January further added to the Pound’s gains against the majors on Friday. The NIESR stated that the UK economy will grow 2.5% in 2014 and 2.1% in 2015, citing “remarkable performance” of the labour market and subdued consumer price inflation in the nation. Meanwhile, the Pound is trading lower against both the US Dollar and the Euro in today’s trading session. The Lloyds Banking report just out has shown an improvement in the nation’s employment confidence for January. With little on the domestic and global macro front in today’s trading session, Sterling investors are likely to remain on the sidelines ahead of the BoE Quarterly Inflation Report later this week for insights about possible changes to the central bank’s forward guidance.

US Dollar – US Markets

The greenback weakened against its counterparts on Friday following the release of dismal US labour market report for January which showed that the domestic economy added fewer jobs than estimated during the first month of 2014. The sluggish pace of hiring in the world’s largest economy over the past couple of months, especially in the crucial healthcare sector, has renewed concerns about the strength of the US labour market recovery. However, unemployment rate dropped to 6.6% for January, the lowest level since October 2008. Meanwhile, the US Treasury Secretary, Jacob Lew, has reiterated that the Congress must act soon to raise the nation’s debt ceiling, stating that the extraordinary measures adopted by the Treasury may not last beyond February 27, 2014. The US Dollar is trading in a tight range against the Euro this morning. In the absence of major domestic economic data today, investors in the Euro-US Dollar pair will keep a tab on a string of important domestic and global economic data, including the US retail sales and consumer sentiment reports.

Euro – European Markets

The common currency strengthened against the greenback on Friday largely tracking the weaker than expected labour market report from across the Atlantic. Additionally, the ECB decision to maintain status quo with regards to its policy stance in its meeting on Thursday underpinned demand for the Euro. However, domestic economic data continues to confound investors about the strength of the currency bloc’s economic recovery. Friday’s downbeat German industrial output numbers for December confirmed investors’ fears that the Euro zone’s largest economy remains vulnerable to weakness. Meanwhile, the German constitutional court has referred the complaint against the ECB’s OMT plan to the European Court of Justice, opining that the programme exceeded the central bank’s mandate and violated a ban on it funding governments. The common currency in a tight range against the greenback in today’s trading session. Meanwhile, data just out has shown that investor confidence in the Euro zone surprisingly improved for February. With no major economic data on tap for the rest of the day, Euro investors will closely scrutinise important domestic macro reports this week for further direction to risk appetite.

Other Currencies – Highlights

The Canadian Dollar received a boost against the greenback on Friday after data showed that the Canadian economy added more than expected jobs in January, with the unemployment rate declining to 7%. The report which came on the back of December’s dismal labour market performance has temporarily put to rest talks of a possible interest rate cut by the Bank of Canada. Furthermore, the weak pace of job additions in the US prompted traders to move away from the greenback, lending a helping hand to the Canadian Dollar. Going forward today, market participants will keenly watch the housing starts report in Canada which is expected to reveal a slower pace of construction activity for December. However, most of market attention remains focused on the Canadian budget scheduled tomorrow and could prove crucial for the direction of the Canadian Dollar against the majors in the near term. Market participants expect the budget to be forward-looking, targeted at reducing the stubbornly high youth unemployment