Market News & Insights
9 March 2015

USD Builds Momentum with ‘Full Employment’

EUR/USD 1.0882
GBP/USD 1.5093
GBP/EUR 1.3865 (0.7209)
EUR/CHF 1.0710
GBP/CHF 1.4851
GBP/AUD 1.9525

This week’s calendar certainly doesn’t have the same packed agenda as the previous one, but there is still the potential for volatility, particularly towards the latter half of the week. This will give the market some time to absorb some of last week’s releases. Friday afternoons Non-Farm Payrolls provided the market with plenty to think about as the 295K reading smashed the expected figure of 235K, while unemployment also fell to a new 6 and a half year low to 5.5% and signalled what economist call “full employment”. This was a very solid number especially when you take in to account the concerns on the potential impact of poor weather and the west coast port strike. It was also the 12th consecutive monthly increase of 200,000+ jobs and marks the longest such stretch since 1994 to 1995.

However some aspects of the report may restrain the market optimism as average hourly earnings, a release which Yellen had previously drawn attention to, was up just 0.1%. The 5.5% unemployment figure also showed a weak household survey employment gain and a decline in the labour force participation. This was not enough to dampen the spirts as EURUSD collapsed to fresh 11 year lows with the pair under 1.09 this morning, while GBPUSD fell back to just above the 1.50 level. Many analyst are now expecting the Fed to alter it guidance on interest rates at the March 17-18 policy meeting by dropping the reference to ‘patience’ on its timing, thus opening the door for a June rate rise.

I remain less optimistic here of a rate rise this early, and will continue to focus on the data coming from the US. While we have no indicators that carry the same weight as the NFP this week, we do have retail sales report out on Thursday which have the potential to derail the greenback’s rally as this figure in the past has proven to be a thorn in the side for the USD.

In the Eurozone today the European Central Bank is scheduled to begin the purchase of European Government Bonds as part of its EUR 1.1 trillion asset purchase plan. While Greece’s Finance Minister Yanis Varoufakis also is due to present their reform proposals to the Eurogroup which they hope will appeases Eurozone lenders and allow the next instalment of bailout money to be released. Greece has until April to reach an agreement with its lenders, but if the past negotiations are anything to go by this won’t be so straight forward. We will be keep a close eye on how well these reform proposals are taken by the rest of the European Finance Ministers.

It is a rather quiet start to the week for the pound on the data front. There are however several speakers due across the wires over the next two days including BoE’s Governor Mark Carney who is due to testify at the House of Lords tomorrow afternoon.