Major Currencies Daily Report: February 4, 2013

While the markets awaited the release of the Non-Farm Payrolls, the actual announcement did very little for the U.S. Dollar. Figures fell short of expectations as they showed that Payrolls increased by 157,000 and Unemployment ticked up from 7.8 to 7.9 percent.

Disappointed investors drove the U.S. currency down, especially as the Federal Reserve stated that it would continue to inject money into the economy in order to bolster growth.

Other metrics showed that Average Hourly Earnings growth dipped from 0.3 to 0.2 percent and Average weekly Hours stayed at 34.4. The only positive signs came from the Private Sector which showed a slight increase in payrolls while Manufacturing data confirmed that activity hit a nine-month high and Consumer Sentiment improved in the first month of 2013. According to the Thomson Reuters/University of Michigan, the Consumer Sentiment Index climbed from 71.3 to 73.8 in January.

The Canadian Dollar rallied against its American counterpart for the first time in three weeks after reports showed that crude oil, the nation’s biggest export, rose while other figures revealed that the world’s 11th biggest economy expanded quicker than expected in November.

The Euro traded at the highest level in 14 months versus the U.S. Dollar after the European Central Bank stated that its balance sheet contracted, thereby suggesting the region has managed to overcome the debt crisis. Furthermore, the ECB indicated that the area’s banks repaid 137.2 billion Euros in three-year loans this past week.

The British Pound, on the other hand, plunged for a fourth week versus the Euro after economic releases on Consumer Confidence and Manufacturing pointed to a slowdown of the U.K.’s economy. The Sterling dipped to a 15-month low against the greenback as the Euro-zone showed improvement in Confidence, adding to evidence that the debt crisis has eased. The Swiss Franc advanced to a 10-month high against the U.S. Dollar subsequent to the release of U.S. Jobs data which suggested that the Federal Reserve will continue with its monetary easing measures. In Switzerland, figures revealed that SVME Purchasing Manager’s Index rose from a revised 49.2 to 52.5 last month on optimism the worst of the Euro-zone’s debt crisis has passed.

The U.S. Dollar advanced more than 1 percent against the Yen and traded at surpassed 2 ½ year highs on the possibility the Bank of Japan may implement further monetary easing. The Yen remained subdued as investors believe that Prime Minister Shinzo Abe will continue to pressure the central bank to step up stimulus.

Lastly, in the South Pacific, the Australian Dollar concluded the week at a five-year low against the greenback subsequent to the release of mixed economic data out of the U.S. and as market investors increased speculation the Reserve Bank of Australia will lower interest rates in the near future. The New Zealand Dollar touched a six-week high versus the U.S. monetary unit after the announcement of job’s metrics reinforced the likelihood the Federal Reserve will engage in further stimulus while an increase in U.S. Manufacturing and Consumer Sentiment spurred demand for risk assets.

EUR/USD- ECB Balance Sheet Signals Improvement
The Euro reached the highest price in 14 months against the U.S. Dollar after the European Central Bank showed that its balance sheet dipped to 2.93 trillion Euros in the week that concluded on January 25th;. This confirmed that it touched the lowest level since February of last year. The central bank also stated that it hasn’t purchased debt for 45 consecutive weeks. On the data front, a release revealed that Manufacturing in the Euro-zone climbed to the highest in close to 12 months; the Purchasing Manager’s Index showed it rose from 46.1 to 47.9. Other reports indicated that Unemployment and Inflation have finally stabilized, adding to the possibility the ECB will leave the benchmark interest rates unchanged when it meets this week.
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GBP/USD- U.K. May Lose AAA Rating
The British Pound declined sharply against the U.S. Dollar after lackluster Manufacturing data out of the U.K. bolstered concerns the country may lose its AAA rating. According to the Purchasing Manager’s Index, Manufacturing plunged from 51.2 in December to 50.8 in January. The Pound has remained under pressure ever since Fitch, the ratings agency warned that the U.K. could have its credit downgraded if it doesn’t cut its debt. The Sterling declined further after news that Economic Confidence in the Euro region rose in January, suggesting the debt crisis has eased.
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USD/CAD- Loonie Rallies
Canada’s Dollar rallied for the first time in three weeks against its American counterpart as oil, the nation’s biggest source of revenue, touched a four-month high last week. Crude oil traded at $97.61 a barrel on Friday on the New York Mercantile Exchange. In addition, data confirmed that Canada’s economy grew 0.3 percent to an annualized $1.56 trillion (C$1.56 trillion), which is quicker than expected. However, analysts anticipate that these weeks reports will show that unemployment may have increased and growth in the job’s sector may have slowed. The Loonie remained little changed subsequent to the release of U.S. Employment data.
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AUD/USD- Aussie Sentiment Down
The Australian Dollar traded close to a five-week high against the greenback as sentiment remained subdued following a string of weak economic data out of the South Pacific nation. This fueled further speculations the Reserve Bank of Australia will reduce the rates after it meets tomorrow. The central bank cut the rates by 25 basis points when it met the last time. Investors await today’s releases which will offer information on Building Approvals, which serves as an indicator on future construction activity.
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Today’s Outlook
Today’s economic calendar shows that the U.K. will report on Construction PMI. The Euro region will issue data on PPI. New Zealand will announce the Labor Cost Index. Australia will publish the House Price Index and Trade Balance as well as the Interest Rate Decision and RBA Rate Statement.