US Dollar Index – (-0.10%)
• The financial markets on Friday concentrated hard on the headline non-farm payrolls number for January and revision for December, with the outcome seeing more poor news for America in the jobs sector. Having strengthened on the approach to the release on optimism for a good number, the dollar ultimately gave back any gains made on the day. EUR/USD rallied from around 1.3565 to an intraday high of 1.3640, with similar moves being seen against other majors. The USD index is only down slightly towards the end of the week, but this is basically the result of swing trading.
• There were a few influences ahead of the non-farms. The RBA released their quarterly monetary policy statement overnight, with a rather mixed assessment. Although the central bank upgraded their growth forecasts for 2014 and gave a generally better outlook than that of their November statement, there were still some warnings, resulting in a more neutral theme. Having raised GDP forecasts by 0.25% for the year, the RBA added that this was a reflection of a weaker currency. AUD/USD generally softened from 0.8980 to 0.8960 ahead of the statement, following through to 0.8922 thereafter, but recovered to 0.8960 after the poor release from America.
• Other news from Europe in the morning session included trade balance data from France and Germany, both showing improvement in deficit and surplus respectively. EUR/USD held fairly steady ahead of much worse than expected German industrial production data, showing a 0.6% decline from the previous month.
• The UK also released their most recent industrial and manufacturing data sets, and was similarly unimpressive. Industrial production rose 0.4% from the previous month and manufacturing production expanded a similarly 0.3%, but both were well short of forecasts. GBP/USD touched a low of 1.6322 in the morning session, but rallied back toward 1.6400 after the NFP.
• So off to America and what investors had been waiting all week for. Predictions for good news failed to be heard, with the headline number for January seeing just 113k jobs being added to the economy in January (185k expected) and in our view more importantly, the number for December only being revised higher by a token 1k to 75k. This makes the overall assessment a bit clearer going forward, indicating a struggling jobs market in the US. The outcome was punished by sharp USD selling across the board, and one feels the damage could have been that bit worse if it wasn’t for the overall unemployment rate actually dropping to 6.6% from 6.7% last month. Whether this trend will continue is a good question, but one should expect prospects going forward to be that bit more balanced; whereas the Fed appear to be happy with the progress “on balance” in the labour market, one still has to weigh up what appears to be a slowing recovery.