Jobs data sends dollar lower

The burden of fear has once again been placed with such subtlety on the shoulders of the dollar that many investors have so far failed to notice it. So accustomed to bashing the euro on account of its weakening fiscal and financial health were they that dealers created a maelstrom of such proportion that they were all caught up in how impossible it might be to ever see it subside. But the dollar’s six-month break from being the whipping boy has come to an abrupt end as traders at the margin pack up their short positions with several arguing that the best near-term bet remains a bounce for a technically oversold euro. And back above a reading of $1.2500 the common question surrounding Europe is fast becoming “what crisis?”

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Euro – Even ahead of Friday’s U.S. employment data the euro reached an intraday high of $1.2550 surpassing Thursday’s peak. European producer prices registered a marginal annual increase to 3.1% while Eurozone unemployment remained near its peak dipping slightly to a 10% rate in May data. Dealers are finding less fresh reasons to bear down on European financial institutions with much of a bad scenario already priced in. In mid-July the EU is due to reveal stress-tests performed around the region, which may shield the sector from further bruising. Against the yen the euro rose to ¥109.88 and today it also buys a higher 82.53 British pennies.

U.S. Dollar – Friday’s non-farm payroll report was expected to reflect the loss of temporary workers hired by the census bureau leading to a net decline of 130,000 jobs. Within the figure the private sector was expected to hire 110,000 jobs after a puny 41,000 jobs in May. In the event the headline rate of unemployment came in at 9.5% while the headline pace of job losses was 125,000 with the private sector creating a higher number at 83,000. Some 225,000 temporary workers lost their roles in June, while the report carried positive net upward revisions for April and May summing to 25,000 positions.

Aussie dollar – A breakthrough in discussions between Prime Minister Gillard and the mining community was announced overnight as the government compromised the scope of its fiscal reach. Rather than taxing all earnings at a 40% rate they have exempted most commodities and confined a 30% tax on earnings arising from iron ore and coal. The Aussie benefitted from Thursday’s slide in the greenback and comforted by the news on the super-tax recovered 2.75 cents. The decline in risk aversion overnight has allowed the Aussie to maintain gains but ahead of the U.S. data has drifted marginally lower to stand at 84.36 U.S. cents.

Canadian dollar –The Canadian dollar reached 94.68 U.S. cents overnight but has retracted to just 93.92 ahead of the employment data. Canadian labor data won’t appear until next week on account of the Independence Day holiday.

Japanese yen – A tapering off of risk aversion and the feeling that at least verbal currency intervention might occur at any moment saw the yen pull back from a surge against the dollar. Today it stands at ¥87.58 having reached ¥87.00 on Thursday.

British pound – The British pound felt a boost from a positive Moody’s report on its fiscal health, which served to drive another nail into the coffin bearing crisis. The report refers to Britain’s history of debt repayment stemming back to the 17th century and termed today’s financial strength as “very high” as it lauded the integrity of the financial sector. The report hardly sounds as though it is a front-runner for any type of downgrade for Britain’s top credit rating and helped send the pound to $1.5216 ahead of today’s report.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers. ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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