FX news and analysis

USD

Non-Farm Payrolls (NFPs) took centre stage on Friday surprising everyone by rising 163k in July when only a 100k rise had been expected from 80k previous. The news temporarily strengthened the dollar as it reduced the likelihood of more Fed stimulus. Some of the impact of the statement, however, was neutralised by the results of the Unemployment Rate, which rose a basis point to 8.3%. Detail's contained in the NFP report also raised concerns: commentators cited the fall in Household Employment as worrying; as was the basis point increase in Underemployment, although pluses included no-change in Average Hourly Earnings and Average Weekly Hours which stayed at 34.5. The dollar ended the day lower, however, as the report boosted riskier assets relatively more than the greenback. Nevertheless many remain sceptical about the importance of the figures and the impact could just be a flash in the pan.

EUR

The euro rose on Friday after better-than-expected data in the U.S showed a rise in hiring which led to widespread optimism about the strength of the U.S recovery. The good feeling spread to Europe where stocks rallied as risk appetite rebounded. The euro also recovered after spiking down after the ECB rate-meeting at which more action had been expected but withheld. Even news that Spain was closer than ever to asking for a full bailout was not enough to upset the euro's rally. Data was also, on the whole, better-than-anticipated with Retail Sales falling at a slower -1.2% rate than the -1.9% expected – although it was still lower than the -0.8% in 2011. Month-on-month it fell to 0.1% from 0.8% when a steeper fall to -0.1% had been expected. Euro-zone Composite PMI (Jul) rose to 46.5 from 46.4 previously and Services PMI was up to 47.9 vs 47.6 previously. German Services PMI also rose but French and Italian fell.

GBP

The pound traded mixed on Friday, rising against the dollar and the yen after risk appetite improved but falling versus the euro which outperformed it. Data released in the U.S, showing a rise in hiring above mean estimates led to a better outlook for the global economy. The pound did not strengthen as much as the euro which was buoyed by a volte face in investor sentiment which had soured after the ECB rate meeting but recovered today amidst heightened expectations that the central bank was now on the verge of pressing the button on more QE. The divergence in data also told on sterling after Services PMI in July fell to 51.0 when it had been expected to rise to 51.6 from 51.3 previous. Official Reserves (Jul) meanwhile stood at $528m vs $914m previously.

JPY

The yen fell on Friday after risk appetite gained a massive boost from a better-than-anticipated Non-Farm Payroll's print which showed a 163k rise in workers gaining employment in July versus a 100k expected. This came despite a rise in the Unemployment Rate to 8.3% and it seems this divergence in data calls into question the fundamental strength of the NFP print, and it is possible the euphoria may wear off. On the data front it was a light day for the yen although Toyota's sales forecasts put it into pole position as the number one car maker in the world – ahead of GM and Volkswagen. This may have reduced the expectation of more QE marginally given the strong yen does not seem to have affected Toyota's competitiveness, although, given it has factories all over the world it will have been much less affected by the strong yen compared to other companies.