v USD mixed after NFP misses forecast, but unemployment rate unexpectedly drops to 8.6%;
v European officials increasingly call for fiscal unity in a strong sign that the region is moving towards further consolidation and potentially "Eurobonds";
v Commodity Currencies are mixed with the AUD paring recent gains ahead of next week's central bank meeting while the ZAR gains on the improved optimism over Europe.
The US Dollar heads into the end of the week mixed against its major counterparts as investors weigh the prospects for slower global growth against better than expected economic data out of the US. The closely watched Non Farm Payrolls report was released this morning at a gain of 120K jobs, short of the expected 125K, but better than last month's reading of 100K. Private payrolls gained by less than expected at +140K, but hiring in the retail sector ahead of the holiday rush was stronger than anticipated. While a number of these jobs will likely prove to be temporary, strong retail sales during the holiday season could translate to more permanent positions being added. Despite the mixed report, investors are more focused on a surprisingly strong reading of the unemployment rate, which fell to 8.6% from 9.0% in the previous reading, the lowest since the end of 2008. The number surely is a positive, but may be slightly misleading as the employment participation rate fell from 64.2% to 64.0% suggesting that the decline in unemployment is being skewed by fewer people looking for jobs all together. Nevertheless, US stocks are well within the black with the Dow Jones Industrial Average having now extended its weekly gains to more than 8% on improving optimism.
The EUR begins relatively flat after paring an early gain as investors remain apprehensive to hold the common currency even as plans to stabilize the region's economy materialize. After global central banks pledged to ease access to USD liquidity earlier this week, it's now being suggested that the IMF is considering channeling ECB loans to the region's struggling economies. Moreover, key Eurozone officials, including German leaders, have increasingly hinted at the need for a "fiscal pact" within the EU suggesting that the region's leadership may be headed towards the eventual issuance of "Eurobonds." ECB President Draghi also echoed Merkel and Sarkozy's rhetoric, calling for fiscal consolidation as a necessity to "restore credibility in the market," paving the way for the ECB to respond with further monetary easing.
The GBP is slightly lower against the USD this morning as expectations grow that the BoE will increase its stimulus programs, albeit at a later date than previously anticipated. Expectations are that the Bank will keep its bond buying commitment steady at its next meeting on December 8th, but that they will likely increase the program in the coming months. The BoE cut its economic growth forecast last month, and a number of Bank members have said more stimulus will likely be needed. However, BoE Governor Mervyn King told reporters that he doesn't want to "fine tune" policy, suggesting that expansion likely won't come until the end of the Bank's current round of asset purchases.
The JPY is weaker this morning as the better-than-expected labor market data out of the US encourages investors to shift capital into higher yielding assets. The yen is ending the week slightly higher than where it began as fears abate that the Eurozone is on the brink of collapse, but it remains relatively well supported near the 77 handle as prospects for slower global growth in 2012 prompts investors to seek the yen's perceived safety and relative stability.
The Commodity Currencies are largely flat this morning with the exception of the ZAR, which has been the best performer against the USD overnight. Raw good prices are generally higher this morning with oil reaching above $100/bbl, gold gaining to $1748/oz and copper rising to $358/lb. The CAD is headed for the biggest weekly rally against the USD in more than two years as gaining investor confidence and the rising price of oil, Canada's main export, support the loonie. The strong labor market numbers out of the US, Canada's primary trading partner, have also provided support. The AUD and NZD are also ending at the highs of the week as investors assume riskier positions. However, gains in both the Aussie and kiwi have been relatively modest ahead of key central bank policy meetings next week with the RBA expected to cut interest rates. The ZAR was the best performer against the dollar overnight, gaining by 1.5%, extending its weekly rise to 6.5%, as optimism over stability in the Eurozone, the main destination for South African exports, has prompted investors to seek the rand's relatively high yields.
This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.