FX news and analysis 9th Mar

USD

The dollar rallied on Friday after Non-Farm Payrolls (NFPs) reported a less-than-expected fall in employment, which supported a less doveish outlook for Fed Policy and a lower chance of quantitative easing (QE). Change in Non-Farm Payrolls (Feb) fell to 227k when a deeper drop to 210k had been expected and January's figures had been 284k. The Unemployment Rate stayed the same meanwhile at 8.3% and Average Hourly Earnings MoM rose by a less-than-predicted 0.1% although the annualized figure looked much more healthy at 1.9%. Average Weekly Hours remained unchanged at 34.5 which was a positive sign as it represented a continually robust climb in full-time work as opposed to part-time being taken by job-seekers out of desperation. Change In Manufacturing Payrolls showed a 31k rise when 22k had been expected. Change in Private Payrolls showed an above expectations print of 233k. U.S Trade Balance showed a widening deficit of -52.6bn in January, which was higher than analyst's estimates and the previous month's -50.4bn print; finally underemployment Rate fell 2 bps to 14.9%.

EUR

The euro fell on Friday despite Greece obtaining an 85.8% participation rate in its PSI debt-swap operation. In an announcement afterwards the government said that it would invoke Collective Action Clauses or CACs to increase particpation to 95.7%, however, this raised concerns that this would trigger CDS's worth 3bn on Monday. In the end it is the decision of the International Swaps and Derivatives Association (ISDA) whether CACs constitute a 'credit event' and therefore trigger CDSs – but the prospect alone weighed down on investor sentiment. Other factors also reduced risk appetite: a lower-than-expected print for Chinese CPI of 3.2% YoY vs the estimated 3.4% raised fears of an economic slow-down. The rate of Industrial Production fell more than anticipated to post 11.4% versus 12.3% expected and 13.9% previous, and Retail Sales also fell quite steeply to 14.7% when a rise had been expected to 17.6% from a 17.1% print previously. Meanwhile German CPI showed no-change after posting a 2.5% print as expected. Although German Exports did increase by a surprising degree – rising 2.3% when a 2.0% rise was estimated and it was a substantial improvement on the -4.4% previous print. French Manufacturing and Industrial Production in general was down, with the headline figure's down -1.2% and -1.5% respectively.

GBP

The pound fell against the dollar on Friday after data from the U.S showed better-than-expected NFPs which strengthened the outlook for the U.S economy and lessened the chances of more QE. Sterling strengthened versus the euro, however, as investors ignored the positive news from the government's PSI debt-swap deal and focused instead on the possibility that a credit event might result from the use of CACs – an eventuality which the ISDA is still deliberating on. The euro further weakened as a result of concerns that other peripheral country's such as Portugal might follow the example of Greece with more PSI deals springing up. On the data front Sterling was hit by a below-expectations Industrial Production print of -3.8% when -3.1% had been expected. A rise in the Producer Price Index (PPI), however, supported sterling as it lead to a more inflationary outlook, reducing expectations of further monetary easing. PPI Input n.s.a (YoY) (Feb) rose to 7.3% from 6.6% previous; PPI Output Core n.s.a (YoY) (Feb) rose to 3.0% from 2.4% and PPI Output n.s.a gave a 4.1% print after 3.9% had been expected.

JPY

The yen weakened after expectations increased of further QE following comments from the government urging the Bank of Japan to increase its asset purchases next week when it holds its monthly policy meeting. The request for more easing came after recent data showed persistently high deflation in the Japanese economy. The news weighed on the yen despite a fall in risk appetite which normally would have been expected to support the yen. Analysts were sceptical the BOJ would increase monetary easing given recent data showing an upward revision in 4th quarter GDP to -0.2%. However, data on Thursday evening showed a fall in Money Supply to 2.9% vs 3.0% expected; and this may have given policy-maker’s the idea that there was more scope for monetary easing. It is probable, therefore, some volatility will be forecast for yen pairs in the run up to the meeting next Tuesday.