Market News & Insights
13 January 2014

Fallout From Friday’s NFP

EUR/USD 1.3666
GBP/USD 1.6436
GBP/EUR 1.2027 (0.8314)
EUR/CHF 1.2333
GBP/CHF 1.4831
GBP/AUD 1.8178

Really only one story worth focusing on this morning and that is Friday’s confusing Non Farm Payroll figure from the US. The headline figure posted an exceptionally weak front month number of 74k against expectations for a +197,000 figure. However, counter intuitively this was offset by the drop in the unemployment rate to 6.7% (getting closer to the Fed’s suggested target rate of 6.5%). After quickly analysing, you see the fall in unemployment can be attributed to a large fall in the labour force participation rate, the lowest in over thirty years. Whilst the markets have so far struggled to interpret Friday’s reading, the key assessment will be that of Fed Chairperson’s Janet Yellen.

After the Federal Reserve announced a long-awaited reduction in its monthly asset purchases last month, this data may indicate that the Fed acted too soon and will likely yield uncertainty about the course of action the central bank should take in light of a not-so-bright economic outlook. One sure reaction since Friday has been a quick halt to the US Dollars’ recent gains. Versus its European peers, EURUSD jumped a cent higher in the immediate aftermath rapidly moving from 1.3569 to 1.3687. Similarly GBPUSD spiked to 1.6516 from a 1.6381 starting point.

The data calendar is quiet enough today across the board. In Europe we have Industrial Production from Italy and CPI from Greece and Portugal. The UK just has the Lloyd’s Employment confidence index and from the US we have the monthly budget statement tonight. From tomorrow onwards we have a busier week of data. From across the water, we have retail sales, inflation and housing data plus the University of Michigan Confidence Survey, all of which will be discussed in more detail in due course. A number of Fed speakers are also scheduled midweek who hopefully will be able to fill in some of the gap’s left from Friday. Closer to home we have the key eurozone inflation figures on Thursday, the significance of which for the ECB we discussed last week. From the UK tomorrow we have both sets of inflation figure sets, the CPI and PPI. Sterling so far this morning has come under mild pressure which appears to be a case of short term profit taking after the pound broke back through key levels versus the euro. Already we have breached the big figure of .8300, quickly moving to a current high of .8318. As we have noted several times of late, with much of the positive news already priced into sterling, it is likely to be susceptible to bouts of profit taking.