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US payroll numbers boost the USD

On Friday we saw the much anticipated US non-farm payroll numbers come in far ahead of expectations. The number of job losses in July came in at -240,000 against a forecast of -325,000. This was a huge lift for the markets and the US economy following 19 months of dire payroll numbers. As anticipated the Dow and the FTSE rallied on the news as investor optimism increased; however in the currency markets we did not see the typical play into risk appetite trading and USD weakness. Initially we did see the USD weaken against the Euro and the Pound, however this weakness was short lived and the USD rallied back considerable across the markets. So what does this mean? Well it could mean a change in sentiment for the US economy whereby it no longer weakens on good news- the key driver for this is the anticipation that the Federal Reserve may now look to raise interest rates sooner than other major economies and is better placed to do so. The economic data also helped to comfort the markets to viewing that the Fed will not look to expand (like the UK) its current measures on QE and ultimately that the economy is out of the deep water it was once in. It is still early days but a very good number nonetheless and could mark a turning point. GBP/USD filtered down to 1.66 and EUR/USD down to 1.4155. A big mover after the data was USD/JPY, the USD finally managed to jump clear of 95.00 and gain 200 points to move over the resistance level of 97.00. This could open the door for a move to 100. Another one to watch is GBP/AUD which is back down to 1.98; this is due to a dampened pound following the QE expansion and expectations that Australia will also look to raise rates before most major economies. The main news this week will focus on the Quarterly Inflation Report on Wednesday from the Bank of England. Here the market will be looking to gauge the UK’s inflation projections and growth projections. The projections are especially key following last weeks expansion of QE by GBP50 billion- the market will want to see evidence to see why this expansion occurred and that it reflects and underlying reason. It is widely expected that the Bank will confirm that the economy has shrunk by more than Alistair Darlings estimate of 3.5%- no surprise there. On Wednesday we also see official unemployment data from the UK, contrary to the US numbers we are expected to see a rise in the number of jobless. Another key event this week is the Federal Reserve’s meeting on Wednesday evening, the expectation is that the Fed will confirm no extension of easing policies and may refer to a turning point in the economy.

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