The dollar was virtually flat early Friday ahead of this morning’s major look at the health of the U.S. labor market as investors refrained from placing big bets. U.S. nonfarm payrolls, due out at 8:30 a.m. EST, are forecast to increase by 150,000 last month, a solid amount that’s expected to leave the unemployment rate at 8.5%. A stronger than expected jobs report could reduce the near-term risk of more Fed support to boost the economy, a dollar-positive scenario.
Ahead of the U.S. employment report, Canada released its own which disappointed, causing the loonie to fall below a key threshold against the greenback. Canada added a mere 2,300 jobs last month, a fraction of the 23,100 investors had expected which unexpectedly pushed the nation’s jobless rate up a tick to 7.6%, its highest since April 2011.
Euro sentiment remained fragile as talks between the Greek government and private bondholders on a key debt swap deal remained at loggerheads. Data showing the fastest rate of growth for Britain’s leading services sector helped quell recession fears, keeping sterling near mid-November highs on the dollar.
Sharing the spotlight with today’s jobs report will be U.S. data on factory orders and the influential services sector.
Currencies outlook
CAD: A surprisingly weak Canadian jobs report pressured the loonie, suggesting the nation’s economy may be losing momentum. Canada’s labor market unexpectedly stalled in January with a negligible gain of 2,300 jobs. The result was about ten times weaker than the increase of 23,100 jobs investors had expected. The weak showing of Canada’s job market caused the unemployment rate to unexpectedly rise by a notch to 7.6%, its highest since April 2011. Coming days after a negative monthly growth print and tame inflation, today’s soft jobs numbers can renew the market debate over whether the Bank of Canada this year may need to slash its benchmark lending rate, now at 1%.
GBP: Surprisingly upbeat data on a sector that drives the U.K. economy kept sterling near 2½-month highs against the dollar. The Britain’s leading services sector grew at its fastest pace in 10 months in January, as the nation’s PMI survey moved to 56, two points higher than December’s 54 reading. Investors had expected a slightly slower pace of growth of 53.5 last month. This week’s decent run of other U.K. PMIs on manufacturing and the construction sector have offered hope the economy may avoid a renewed downturn this year. Nevertheless, the Bank of England is widely expected to launch another round of asset purchases to bolster an economy that contracted in the final quarter of last year. Another negative GDP reading in the first quarter would meet the technical definition of a recession.
EUR: Euro sentiment struggled to gain much positive traction as talks between Greek officials and private bondholders on a debt swap agreement continued to drag on, keeping the specter of default on the table. The euro’s near-term fate should continue to be held captive by the Greek debt talks. The European Central Bank meets next week and although it may keep its key rate steady at 1%, it could flag a rate cut in the months ahead given the darkened outlook for growth across the continent. With investors focused on Greece, they largely shrugged off euro zone data showing services sector activity returned to growth in January while retail sales for December fell 0.4%, slightly more than forecast.
JPY: The yen kept to a paper-thin range against the dollar overnight, though still within reach of recent three-month highs. In the event of a disappointing U.S. jobs report today, the yen would likely flirt with new all-time highs, increasing the risk of official Japanese action to stem its currency’s export-damaging rise.
USD: The dollar initially fell then quickly steadied in the wake of today’s better than expected U.S. jobs report. Nonfarm payrolls rose 243,000 in January, the most in nine months, a bigger than expected increase that unexpectedly reduced the nation’s jobless rate to 8.3%, its lowest since February 2009. Investors had expected a gain of 150,000 payrolls from the revised addition of 203,000 in December. Although positive for risky assets, today’s employment report can also reduce the near-term need for more pro-growth measures by the Fed such as a third round of quantitative easing, a factor that can underpin the dollar.
