Non-farm numbers prop up Greenback

An eventful week saw the US dollar strengthen against major
currencies as US non-farm payroll numbers were released on Friday
(8^th November) revealing  204,000 new jobs were
created in October against market expectations of 120,000. With
positive results coming out of the US employment numbers, scaling
back of the US Federal Reserve’s stimulus measures are again back
on the table. Though the Fed has assured markets that no action
will be taken till the economy gets a good run of positive data,
markets do expect them to scale back sooner rather than later –
possibly by the end of 2013.  Fed Reserve Atlanta member
Dennis Lockhart is expected to speak on the economic outlook
tomorrow and markets will follow any statements regarding
‘tapering’ very closely.

Given that a relatively strong euro was hampering exports
amongst nascent growth in most Eurozone economies, it came as no
surprise last week that the ECB cut interest rates by 25 bps which
brought about substantial weakness in the euro. Markets were
expecting a rate cut, as inflation figures were released way below
expectations, triggering talk of deflation in the Eurozone. An
already weak euro decline was exacerbated as it felt the main
impact of the non-farm payroll numbers as the EUR/USD pair moved
down almost 300 basis points last week. We are currently at 1.3365
on the currency pair, with Italian industrial production data due
out later today.

Sterling has also remained volatile against the Greenback and
the euro. Though growth remains steady in the region trade balance
figures released on Friday showed the trade gap had widened by the
most in more than a year during the third quarter as imports rose
and exports fell by 3.5 per cent. Having moved up to 1.61 against
the US dollar, Sterling slipped 150 points to 1.5950 as it managed
to claw its way back and hang onto the 1.60 level where we find
ourselves this morning. Markets will keep a close watch on BOE
Governor Mark Carney’s quarterly inflation report on Wednesday, as
he is likely to announce that the economy is showing signs of
improved momentum and the unemployment rates are heading
downwards.