Market Review – 07/01/2011 18:57 GMT
Euro tumbles to 4-month low despite weaker-than-expected U.S. payrolls report
The single currency fell broadly on Friday as renewed euro zone sovereign risk pressured the euro. Although eur/usd managed to stage a strong rebound from 1.2945 to 1.3020 after release of weaker-than-expected December U.S. non-farm payroll data, the pair swiftly dropped again in New York as U.S. unemployment rate unexpectedly fell to its lowest level in 19 months, offsetting initial disappointment in US jobs market, the single currency later tumbled to a 4-month low of 1.2906 before stabilising.
U.S. non-farm payroll came in an increase of 103,000 in December against the consensus forecast of +175,000 and +39,000 in November, while the U.S. unemployment rate unexpectedly dropped to 9.4% in December from 9.8% in previous month.
Versus other currencies, the euro tumbled to 4-month lows of 0.8299 and 106.94 against the British pound and Japanese yen respectively on Friday, while eur/chf also fell to near its all time low of 1.2398 (Dec 30) to 1.2450 in New York afternoon.
Cable fell initial to 1.5407 in Europe on broad-based firmness in greenback, however, active cross-buying in sterling versus the euro lifted the pair there on speculation that UK economy will outperform the common currency bloc and sterling later rallied in U.S. session after release of weaker-than-expected U.S. non-farm payroll data and touched a session high of 1.5579 before easing.
The dollar weakened against the Japanese yen after the release of U.S. jobs reports and usd/jpy pared its intra-day gain and dropped sharply from 83.70 to 82.90 in New York on fall in U.S. Treasury yields.
Earlier, ECB President Trichet said on Friday that he saw no danger of inflation taking off in euro zone, and he also called for governments to consolidate their finance and added the European Union budget rules should not be stricter than those proposed by the Commission. He also added that the bond purchase was part of efforts to stave off Europe’s debt crisis and to get the markets back into order and most economists believed the ECB was focusing its purchases almost exclusively on euro zone debt trouble spots Ireland, Greece and Portugal.
Federal Reserve Chairman Bernanke testified before the senate budget committee on Friday and said that decline in the unemployment rate would be likely to be slow even with a pickup in U.S. growth this year, signaling no change in the central bank’s monetary stimulus.
Markets in Japan will be closed on Monday due to ‘Coming of Age Day’ holiday.
Economic indicators to be released next week include:
New Zealand trade data, Australia retail sales, Switzerland retail sales, Canada building permits on Monday; Japan current account and leading indicators, UK RICS house prices, Australia trade balance, Canada housing starts and US wholesale inventories on Tuesday; Japan machine orders, trade balance and Economic watch DI, UK trade balance, Canada new housing price index, and US export price index and Fed budget on Wednesday; UK industrial production, manufacturing and Band of England rate decision, Canada trade data, and US trade balance, jobless claims and PPI on Thursday; and Japan Domestic CGPI, Germany CPI final and HICP final, Switzerland Combined PPI, UK PPI and CPI, and US retail sales, real earnings, industrial production, capacity utilisation and business inventories on Friday.