US Employment Report Under the Spotlight
Today, the key US jobs report will have an added importance other than helping the Federal Reserve (Fed) decide about its further moves with their interest rate increases. The latest mayhem in financial markets has been caused due to factors such as slowing growth in China and a slump in commodity prices. Today’s update of the December employment report across the Atlantic could provide some reassurance about growth prospects and bring in a wave of relief just before the end of the final session of this week.
In other economic news, the just out data showed that UK’s total trade deficit narrowed less than estimates for November. The economic release, however, had little impact on trading in Sterling against the US Dollar. Also, figures earlier today indicated that German industrial output unexpectedly fell and trade surplus narrowed for November.
Pound Sterling – UK Markets
Yesterday, the Pound briefly fell to the lowest levels in five-and-a-half years against the US Dollar. Though there was no particular reason for the latest decline, a series of bad news pressured the Pound against the major currencies. Firstly, the Halifax house price index soared above expectations for December, pointing to a sharp gap between supply and demand of British properties. If there is no change to the current situation in the near term, a housing bubble could resurge in the UK. Additionally, uncertainty stemming from UK referendum of the nation’s membership in the European Union continues to weigh on Sterling. Also yesterday, the UK Chancellor George Osborne warned that this year would be critical for the UK economy, citing threats from slowing growth in China, low commodity prices and tensions in the Middle East.
This morning, the pair has partially made a small recovery. The just released data showed that UK’s total trade deficit narrowed less than estimates for November as there was less demand from abroad. Also, the decline in trade deficit was partly due to decline in imports, especially oil prices.
US Dollar – US Markets
The US Dollar is trading on a stronger footing against the shared currency this morning, extending its recovery mode alongside a lift in market sentiment as Chinese equities staged a strong comeback rally earlier today.
Heading into the crucial US jobs data, further direction in the currency pair will be influenced by the performance of the labour market at the end of 2015. The nonfarm payrolls data scheduled to release later in the day will be the first major data print on the US economic calendar for 2016. The reason to scrutinise today’s US jobs report do not much vary from last month, only now the focus is more on Fed further actions this year. After the Fed arrived at a rate rise decision in December, the policymakers stressed that further course of rate increases would depend on the economic indicators. Although the non-farm payrolls figures are projected to come in slightly lower than November’s surge, the expected increase in jobs is still indicative of a strong labour market. Also, the jobless rate appears to be getting close to the pre-crisis levels.
Euro – European Markets
Surrendering most of its gains against the US Dollar, the shared currency is trading on a weaker footing against the greenback this morning. Sentiment for the Euro has dampened today amid broad based strength in the US Dollar as global markets; especially China, recovered from the negative sentiment witnessed in the last few trading sessions. Also, the US currency is supported ahead of the publication of crucial non-farm payrolls data scheduled later in the day.
In Europe, a string of data releases from the 19-nation currency union’s largest economy earlier today attracted notable market attention. Economic data showed that German industrial sector unexpectedly faltered in November, against an upwardly revised output growth in the previous month. Today’s dismal industrial data has halted a relatively decent run of economic numbers from Europe’s powerhouse. Also, German trade surplus narrowed in November as growth in import volumes overshadowed the modest rise in exports. German data released today collectively suggests that the economy might have lost some growth momentum at the end of 2015.
Other Currencies – Highlights
The Canadian Dollar has regained some lost ground today after touching multi-year lows against the US Dollar previously. The Canadian currency was pressured due to a decline in energy prices and the recent turmoil in the Chinese stock market that shook markets globally. The greenback – Canadian Dollar currency pair trimmed its gains as oil prices recovered and following a speech by the Bank of Canada (BoC) Governor Stephen Poloz at Ottawa yesterday. His remarks were less dovish as he adorned the benefits of the depreciation of the Canadian dollar and highlighted that a US recovery would help Canada overcome the effects of a slide in commodity prices. The BoC Governor had last month indicated that there was room for a further rate cut, however his latest remarks do not suggest that the central bank is ready to ease further at present.
On the macro front, both Canada and the US will release their respective employment reports today. Even though all eyes will be on the US labour market data, a disappointing jobs report in Canada could trigger volatility in trading in the currency pair.