Friday’s non-farm payroll release in America has raised hopes about the US recovery. The number of jobs created increased by 192,000 with hiring spread across a range of industries. The unemployment rate has now fallen again, down to 8.9%. The manufacturing and construction sectors added 33,000 jobs, business services increased by 47,000 and there were large increases in healthcare and hospitality. A decline in US unemployment rate is generally positive for risk sentiment, as the world’s largest economy emerges from recession. Stock markets are more bullish and investors are moving away from risk averse assets. This has caused the US Dollar to decline against many currencies including Sterling and the Euro. The Greenback is currently near a 12 month low against the Pound
The Euro is particularly strong at the moment after Jean Claude Trichet dropped a big hint that interest rates will increase next month. Sterling dropped even further against the Euro today after Andrew Sentence’s replacement at the Monetary Policy Committee was confirmed as being Ben Broadbent. Sentence is the most hawkish member of the MPC and has been voting for monetary tightening for some time now, Broadbent is thought to be less predictable. As a result the Pound suffered today as the expected date of an interest rate rise was put back slightly.
Elsewhere the Canadian Dollar is currently trading at a three year high against the US Dollar, and is making strong gains against many other currencies. This is because of the increased cost of crude oil, which is Canada’s biggest export. Escalating violence and possible civil war in Libya has raised concerns about supply and the Canadian Dollar is benefitting as a result.
The week ahead will be notable mainly for the Bank of England Interest rate announcement, where no change is expected. There is an outside chance of a rate rise however, as inflation takes hold in the UK economy. Also released in the UK are retail sales figures on Tuesday and industrial production on Thursday. Additionally Mervyn Kings is speaking twice this week on Tuesday and Friday. The American industrial index, The Michigan Sentiment is released on Friday as are retail sales. In Europe traders will watch for industrial production on Wednesday and the consumer price index of inflation on Friday.
