US Dollar (USD) on Bullish Form despite Weaker Non-Farm Payrolls
Despite the latest US Non-Farm Payrolls report proving more mixed than hoped, with just 151,000 being added to the economy rather than the 190,000 forecast, the Euro to US Dollar (EUR/USD) exchange rate has trended lower this afternoon. As wage growth significantly bettered predictions traders have continued to speculate that the Fed may opt to raise interest rates again sooner rather than later, a prospect that has boosted the ‘Greenback’ (USD) sharply. As a result the EUR/USD pairing has slumped to 1.1134 towards the end of Friday’s European session.
Demand for the Euro (EUR) remains higher on Friday as markets await the latest US Non-Farm Payrolls report, while the Pound (GBP) continues to slump on the back of the BoE’s dovish commentary.
Odds of Fresh ECB Easing Fails to Weigh on Euro (EUR) Exchange Rate despite Weak German Data
At the end of the week the single currency (EUR) is on defiantly bullish form, in spite of the latest German Factory Orders showing a more severe contraction in demand than traders had expected. Demand slipped from 2.1% to -2.7% on the year in December, a sharp decline that does not appear to bode overly well for the Eurozone’s powerhouse economy.
Although European Central Bank (ECB) President Mario Draghi yesterday indicated that the central bank was likely to expand its monetary loosening measures in March markets have equally remained somewhat dismissive of the policymaker’s comments. Investors remain uninclined to price more quantitative easing into the Euro following the disappointment of December’s policy meeting, allowing the Euro to make fresh gains. In part this strength is due to the relative weakness of the US Dollar (USD), which has bolstered the common currency thanks to the negative correlation between the two.
Pound Sterling (GBP) Softened by Dovish BoE Outlook
Although pundits were unsurprised by the Bank of England’s (BoE) decision to leave interest rates unchanged the more dovish tone of policymakers prompted the Pound (GBP) to slump across the board. Sole dissenting hawk Ian McCafferty returned to the fold yesterday after several months of arguing for a rate hike, a move that decreased the likelihood of the Monetary Policy Committee (MPC) beginning to tighten monetary policy any time soon.
Investors were also unimpressed with the downwardly revised inflation report which indicated that global slowdown pressures could weigh on the domestic economy for some months yet. As economists have been inclined to suggest that higher interest rates may not materialise until 2017 there has been little reason to favour the softened Sterling.
US Dollar (USD) Exchange Rate Trending Cautiously ahead of Non-Farm Payrolls Today
Meanwhile, the odds of the Fed achieving a second interest rate in the near future have also been dented this week by a succession of disappointing US data. The ISM Manufacturing and Non-Manufacturing Surveys both fell short of forecast, suggesting that the world’s largest economy is experiencing more of a slowdown in growth than previously thought. A weaker Durable Goods Orders figure added weight to this speculation, putting further pressure on the Federal Open Market Committee (FOMC) to leave interest rates on hold to avoid exacerbating current global volatility.
However, the US Dollar may rally later today with the release of the January Non-Farm Payrolls. As the job market is one of the primary factors considered by policymakers when assessing monetary policy a stronger showing here could counteract the more dovish influence of other recent data. If job creation slows, though, the Euro to US Dollar (EUR/USD) exchange rate is expected to strengthen further.
Current EUR, GBP, USD Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was making gains around 0.7703, while the Euro to US Dollar (EUR/USD) pairing was trending narrowly at 1.1201. Meanwhile, the Pound Sterling to US Dollar (GBP/USD) exchange rate was slumped in the region of 1.4543.