Us Jobs Rises By 216,000, Sterling Hits Low

By Author: russelmori
Total Articles: 25
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At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.
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Sterling fell against a broadly stronger dollar on Friday after the anticipated release of US non-farm payrolls was better than expected and improved the chances that monetary policy makers would start to wind in the loose monetary stance in the US. Further pressure on the pound came from an earlier survey that showed weaker British Manufacturing ...
... activity growth in March.
The US employment report showed the economy added 216,000 jobs last month, the largest increase since May, offering more optimistic signs that the economic recovery was underway.
Sterling hit a session low of $1.5987 against the dollar after the data, not far from a two month low of $1.5937 hit last month. Traders said a large sell order for the 3.00pm fixing would add pressure on to the pound. Technical analysts were looking for a daily close under the February lows at $1.5963 to open up further downside potential for the pound.
Before the U.S. data, the dollar was supported by comments from Minneapolis Federal Reserve President Narayana Kocherlakota who signalled the Fed could raise interest rates by three-quarters of a percentage point by the end of the year.
Sterling was also weighed down by weaker-than-expected British manufacturing activity growth in March. The survey, published earlier on Friday, showed a sharp slow in inflows of orders, but that firms still ramped up prices at a record rate to cover rising costs. The figures highlight the balancing act facing Bank of England policymakers over how to tackle stubborn inflation that continues to rise without risking harming the economy, but will reinforce expectations it will leave rates on hold in May.
The euro weakened slightly against the pound and GBPEUR moved up around 0.2% to €1.1343, but stayed within striking distance of a €1.1296 achieved last Thursday. The low last week was attributed to the inflation report in the euro zone which was higher than expected and confounded expectations for a rise in ECB interest rates as early as Thursday this week.
"What we have now is more hawkishness coming out from ECB, more hawkishness coming out from some members of the FOMC. So there's nothing quite so special about the UK's rate outlook, and that's being reflected and eroding the interest rate outlook for sterling,"said a currency strategist at SocieteGenerale.
The highlight of this week will be the interest decision meetings in both the UK and Europe. It is expected that the UK will leave monetary policy unchanged with interest rates at 0.5% and QE at £200bn. Europe on the either hand is expected to many to start raising their rates immediately. If they do it will be interesting to see the effect of the increased borrowing costs on the struggling periphery nations. Markets expect the Bank of England to raise UK interest rates in July, with another rise factored in by year-end.
IN THE UK

UK PMI manufacturing declined, to 57.1 for March from 61.5, showing that activity in British factories slowed in the last month.

GBPUSD moved out its 2 month trading range of between $1.60 -$1.64, to fall to the low of the day at $1.5972
The UK saw a slight boost though as output prices rose at their fastest pace since 1999 and input prices rose for the 19th month in a row highlighting the dilemma the Bank of England faces in regards to interest rates
The pound sees a 0.2% gain against the euro to reach €1.1343, still just above the 5 month low hit on Thursday of €1.1296

ELSEWHERE

Generally the euro continues to hold strong despite poor PMI figures released from the Eurozone with figures dropping 59.0 to 57.5
US Non-Farm Payrolls better than expected showing an increase to 216,000 against expectations of 190,000 causing the dollar to rise
Unemployment rate also surprised economists by falling to 8.8% from 8.9% helping the dollar to trade at $1.4064.
ECB inflation forecasts predict a continued rise, confounding expectations for a rate rise this Thursday
Swiss retail sales came out much better than expected to 1.5% from a previous -2.4%

DATA TO LOOK OUT FOR

UK PMI construction at 9.30 expected to fall to 54.8 from a previous 56.5, more important than PMI manufacturing on Friday
10.00 am sees European Price Index, could confirm the ECB's pricing worries after the inflation report last week.
Fed's Bernanke speaks this afternoon, following a run of good data; it will be interesting to see his stance on monetary policy.
Highlight of the week will be the UK, European and Japanese interest rate decision meetings on Thursday.

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Russel mori writes for Gerard Associates LTD, for more information on QROPS Transfers, HMRC QROPS, QROPS, QROPS List, QROPS Guernsey info available online.