Euro and pound lower on negative data

USD

The dollar continued to rise on Friday after the FOMC minutes hinted that the Federal reserve might wind up its asset purchase programme earlier than expected – possibly even as early as this year. There was also much speculation focused on Non-Farm Payrolls (NFPs) scheduled to be released later on Friday. Experts forecast a 153k rise compared with an increase of 146k in the prior month.

ADP Employment Change rose to 215k when a rise of only 140k had been estimated – however ADP has been discredited as an indicator for NFPs as it has been spectacularly wrong in the past. Also New Jobless Claims and Continuing Claims for Dec 29 and Dec 23 respectively released on Thursday were disappointing and both showed rises in those claiming unemployment benefits, which could be negative for NFPs. A stronger-than-expected payrolls' figure is widely expected to propel the dollar higher.


EUR

The euro fell on Friday during the first half of the European session after mixed data reinforced growth concerns and added fuel to speculation that the ECB might introduce looser monetary policy in 2013.

Euro-zone Composite PMI slipped back to 47.2 from 47.3 previously after no-change was expected. Services PMI meanwhile remained the same at 47.8 in line with expectations. German Services PMI fell to to 52.0 from 52.1, French fell to 45.2 from 46.0 (further reinforcing fears that the core was starting to suffer economically), Italian PMI was the only one to show a rise to 45.6 from 44.6 when a more muted increase to 46.0 had been expected. Other data was more positive, with German Retail Sales in November y/y only falling by -0.9% when a deeper -1.6% contraction had been expected. Month-on-month it actually rose by 1.2% from -1.3% when a 0.8% rise had been the consensus estimate.


GBP

The pound fell on Friday morning after more bad data which showed a much deeper than expected slump in the U.K's largest industry sector weighed on the outlook for the economy. Services PMI in December fell to 48.2 from 50.0 when no-change had been expected. Furthermore the drop showed a move from growth - characterised by an over-50 result - to contraction - characterised by a below-50 result. This followed on from negative Construction PMI on Thursday which showed an unexpected fall to 48.7 from 49.3 when a 2-bps rise had been the estimate.

Nationwide House Prices, released on Thursday, were also disappointing after they showed below-expectations falls of -1.0% y/y and -0.1% m/m, undershooting expectations on both counts. On the bright side, Net Consumer Credit (Nov) showed an above expectation's rise to 0.1bn from -0.3bn from a 0.0bn forecast, whilst Mortgage Approvals (Nov) rose by 54k from 53.1k previously, in line with expectations.

JPY

The yen slumped overnight after Japanese stocks rallied sharply at the open after investors got their chance to react to the positive news of the fiscal cliff deal in the U.S. The sharp fall undid most of the gains made on Thursday after a variety of factors weighed on risk appetite. These included growth fears for both Europe and the U.S and poor PMI data from the U.K and Switzerland, two countries which previously had been viewed as 'safe'.

Another factor working to weaken the yen in the background is the new government's pro-easing stance which is expected to lead to increased pressure being placed on the BOJ to increase its money printing, and could erode the currency's value over the longer term.