April payroll data offered a mixed assessment of the health of the U.S. labor market. An outright payroll gain of 244,000 was indeed strong, while a 268,000 gain across private sector employers was the highest in more than five years. Yet the 9% rate of unemployment worsened by two-tenths. Dealers took the opportunity to unravel recent strength in the safety valves of the Swiss franc and the Japanese yen, which both sustained hefty reversals as the dollar recovery revived on Friday.
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U.S. Dollar – The payroll rebound is taking precedent over the first rise since November in unemployment and has provided risk appetite with a much-needed rebound after a tumultuous week. The dollar index has fought back from a low this week at 72.69 and is up by 0.13% today at 74.27. The dollar is subsequently stronger against everything but the Aussie and Canadian dollars.
Japanese yen – Japanese officials stepped up their war of words against a strengthening yen. Chief Cabinet Secretary Edano and Finance Minister Noda reiterated its observation of the yen’s behavior in the currency market, while another called the recent yen strength as troublesome. Discussion in the market over further and possibly unilateral intervention by the Bank of Japan resurfaced overnight. However, the healthy gain in U.S. jobs last month may have spared the need for the central bank to act. The yen continued its drift away from Thursday’s peak against the dollar at ¥79.57 ahead of the data back above ¥80.00. In the immediate bloodbath that characterizes trading post-payroll data each month, the yen was pile-driving lower to within inches of ¥81.00.
Euro – Plenty to talk about as far as the euro goes. In yesterday’s commentary I noted that it wouldn’t be long before President Trichet’s cohorts were rewriting his words. Sure enough first up to the podium was Austrian banker Ewald Nowotny who said it would be wrong to interpret Thursday’s comments as dovish. He also said that markets had over-interpreted the ECB’s message. Trichet directly quoted Treasury Secretary Geithner and Fed Chief Bernanke’s recent affirmation of the national desire to see a strong dollar, which Trichet said he completely shared. “We are incorporating in our analysis into this exchange rate situation,” he said, leading many onlookers to conclude that the central bank has suddenly gone soft on the need to raise rates on inflation grounds when a strengthening euro may be stealing from growth. It must be said, the ECB is working on its timing and not debating whether there is a need to tighten. After the U.S. employment report was released the euro sank further as the dollar rebounded trading through its lowest in two weeks before gathering its legs beneath it. The euro last traded at $1.4495.
British pound – The pound rallied off its weakest in at least two weeks after cost pressures facing manufacturers stepped up last month. The pound earlier reached $1.6355 against the dollar but rebounded to a session high at $1.6437 after producer price input costs jumped by a greater than expected 2.6% during the month leaving the measure higher by 17.6% over a year ago. Output costs rose 0.8% in April for an annual pace of change of 5.3%, while the dumbed-down core reading of output costs rose 0.6% on the month for a 3.4% annual gain. The pound equally rose per euro to 88.44 pence.
Canadian dollar – Dealers remained cautious towards the loonie ahead of the U.S. employment report. Immediately after Statistics Canada reported a heady April gain for employment of 58,300 jobs investors drove the Canadian unit sharply higher to buy $1.0397 U.S. cents from $1.0298 in the run-up to the report. The government said the economy has now added 282,000 jobs in the space of a year while full-time positions have now surpassed the October 2008 level for the first time.
Aussie dollar – The Reserve bank released its quarterly monetary statement on Friday ramping up its inflation forecast for 2011 to 3.25% compared to its February projection of 3%. It maintained its growth estimate at 4.25%. The central bank signaled a need to raise interest rates at some point if it was going to meet its inflation-fighting objective that challenges it to maintain consumer prices between a 2-3% band. The Australian dollar reversed a portion of Thursday’s weakness against the dollar adding two cents from the day’s low at $1.0537. The Aussie remains bid, but at $1.0677 ahead of the U.S. employment report is off the session peak at $1.0734. The AiG construction performance index eased further during April to read 37.9.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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