The U.S. was stuck near a six-week low against a basket of its major rivals overnight, despite data that showed America’s unemployment rate fell to its lowest level in five years in November. Indeed, last Friday’s closely watched payrolls report was surprisingly strong and showed generally solid jobs growth throughout most sectors of the economy. It followed a surprisingly strong reading of the jobs market in October and suggested the labor market is improving at a steady, albeit still slow pace. However, the extent of the report’s strength is not likely to meaningfully bring in the timeline for an expected reduction in Fed monetary stimulus around the end of Q1 2014 (although some are still holding out for a surprise taper in Fed bond purchases at next week’s FOMC meeting). Barring a surprise announcement by the Fed next week, the dollar’s upside is likely to remain limited into the year-end.
The euro hovered near a six-week high against the greenback after last week’s U.S. payrolls report, which was encouraging but did little to increase the chances for a reduction in Fed stimulus at the bank’s final meeting of 2013 next week. Additionally, while the ECB last week sounded very cautious on the 17-member economy and kept the door to further monetary easing wide open, it did not signal any imminent risk of rate cuts. Consequently, the single currency has remained well supported.
Dollar/yen rose back toward a six-month high overnight as the prospect of continued Fed asset purchases until next year fueled further gains in riskier assets, often at the expense of the low yielding Japanese yen. Data overnight showed the world’s number three economy grew at a much slower pace than expected in Q3, which is likely to keep the BOJ biased toward further monetary easing.
USD: The dollar remained pinned near a six-week low against a basket of its major rivals, despite better than expected payrolls data last Friday. The closely watched jobs report for November showed that America’s economy added more workers than expected last month and that the nation’s unemployment rate surprisingly fell to its lowest level in five years. The report comes on the heels of October’s better than forecast payrolls report and suggests continued improvement in the nation’s jobs market. While encouraging, the data is not likely strong enough to suggest a meaningfully higher risk of the Fed reducing its asset purchases before sometime in Q1 2014. While some market participants have held out hope of a move at the Fed’s final meeting of this year on December 17-18th, the consensus forecast for a taper still suggests a move will come in March. A relatively quiet economic data week could keep focus on Washington, where lawmakers could reach a deal on a budget this week. A budget deal would reduce some concerns about another fiscal showdown early next year and may bring in the timeline for the Fed to begin reducing its monetary support for the economy.
EUR: The euro remained near a six-week high against the U.S. dollar overnight. Last week, a strong U.S. payrolls report, while encouraging, was not likely strong enough to bring in the timeline for an eventual reduction in Fed monetary stimulus. At the same time, while the ECB left the door to further monetary easing wide open, President Mario Draghi’s statements last Thursday did not suggest a high risk of an imminent move by the ECB. So, while the medium and longer-term outlook for the euro remains negative, the single currency may remain well supported into the year-end.
JPY: The yen slipped back toward a six-month low against the U.S. dollar overnight as investors bought equities and other higher yielding assets. The low yielding Japanese yen tends to underperform during periods of elevated investor risk appetite. Data showed that the world’s third largest economy grew by just 0.3%(q/q) in the third quarter, which put its annualized rate of growth at 1.1%, well below the initially reported 1.9%. The disappointing data should keep the BOJ biased toward further easing and keep the yen pressured across the board.
CNY: Data over the weekend showed that Chinese exports soared by 12.7%(y/y) in November, well above the 7.1%(y/y). Importantly, for the Aussie, Chinese imports from Australia rose to a new record high. Separately, data showed that inflation came in below forecast for November. The figures helped lift the Australian dollar off of a three-month low before it gave up some of its overnight gains ahead of the North American market open.
Strong Chinese trade data and cooler than expected inflation for November helped lift the Aussie off of a three-month trough against the greenback overnight.