FX News And Analysis

 
The dollar fell on Friday after data showed a fall in U.S. hiring, a rise in the unemployment rate and a slowdown in manufacturing. The poor results led to speculation that the Federal Reserve might increase quantitative easing (QE) which precipitated a fall in the dollar. Nonfarm Payrolls in May rose by 69k when 150k had been expected and 77k had been the previous month's print. The unemployment rate rose to 8.2% from 8.1% in the previous month even as no change had been expected. Average hourly earnings failed to rise as much as expected as did personal income and personal consumption expenditure. The final nail in the coffin for the dollar on Friday, however, was ISM Manufacturing, which fell more than expected to 53.5 vs. 53.8 expected, from 54.8 previous. ISM Prices Paid increased easing fears after it showed a deflationary trend by falling to 47.5 from 61 when a drop to 57 had been forecast.

EUR
The single currency rebounded on Friday partly because the dollar weakened on worse-than-expected unemployment and manufacturing data and also because euro zone data was surprisingly resilient giving new hope of recovery. Euro zone Manufacturing PMI in May, for example, rose a basis point to 45.1 from 45 as 45 was expected, which, although still a low reading, nevertheless showed a positive bounce. In addition, Manufacturing PMI in Germany, France and Italy all rose. Earlier on, the euro had fallen on continued fear about Spain's banking system and Greece's possible exit from the euro. A solution has still not been found for saving Bankia and anti-bailout party Syriza still shows strong ratings in opinion polls. Risk aversion was further hit by a slowdown in Chinese manufacturing data and lower probability of Beijing using stimulus. U.K. and Canadian data were also worse than expected, showing the possibility of another global recession in the making.

GBP
The pound continued to weaken on Friday and reached new lows against the dollar after manufacturing PMI showed its second steepest fall in five years. Manufacturing PMI for May fell to 45.9 from 50.2 previously and 49.7 expected. Not only did it show a move from growth to contraction by crossing the 50 divide, but it also reflected a fall of over 10%. Apart from U.K. data, there was little good news to support risk appetite after a fall in Chinese manufacturing, slowdown in Canadian GDP and falls in U.S. manufacturing and employment fueled concern of a global recession. The support the pound had previously gained from its safety status failed to help today. Indeed sterling appeared to be losing popularity, possibly following a string of poor data and recessionary GDP, which increased bets the BOE could increase QE. The BOE is meeting next week for its rate decision and it's now possible that more asset buys will be announced.

JPY
The yen was the strongest currency on Friday after a fall in global risk appetite led to an increase in safe-haven demand and poorer-than-expected U.S. data made the dollar less attractive to investors who opted instead for the yen. At first, it was manufacturing data from China, which hit risk appetite after showing a slump, then a sheer drop in U.K. manufacturing and null growth in Canada also impacted, helping the yen to rise. Finally, lower-than-expected NFPs really created a panic. Toward the end of the day, however, the yen did pull-back from its highs after traders booked profits ahead of the long weekend and possibly due to concerns it was now in intervention territory. In fact, there was already speculation of BOJ involvement in stealth intervention after dollar-yen breached 78.00. The outlook remains bullish for the yen although intervention may force it into a range temporarily.