The dollar fell against most counterparts on Friday after weak payroll figures failed to meet analyst’s expectations. Private payrolls were up only 83k as apposed to the 113k expected. Manufacturing payrolls, average hours worked, and average hourly earnings were also all down. However, the overall unemployment rate fell by 0.2% from 9.7% to 9.5% showing less people claiming unemployment benefit, although commentators have put this down to the fact that some people have completely given up looking for work until there are more jobs rather than because of an increase in new jobs. Unemployment is set to further increase as more and more public sector workers are laid off. GDP is still low and consumer confidence rattled so analysts are sceptical about whether the private sector can make up the short fall. Another issue relating to the dollar is how the relationship between risk and the dollar develops. Recently there had been a clear cut correlation between rising risk and a stronger dollar but the relationship has broken down over the last few weeks. The greenback closed down against the euro at 1.2565 and up against the yen at 87.72.

   The euro continued its rise following a reasonably successful bond auction in Spain and data released showed stability in the Euro-zone economy as the unemployment rate dropped slightly from 10.1% to 10.0%. The euro has remained buoyant after Thursday’s news that the ECB had been paid back most of the 442bn loan it made to banks and other large institutions at the height of the financial crisis. The market had been concerned they would not be able to repay the debt and some fatalities might rock the markets again. The ECB did still have to extend some credit to a few struggling banks, however, but the situation was broadly better than the market had expected. The euro was up to 1.2565 against the dollar and 110.24 against the yen.

   The pound continued to gain in value against most currencies as rating agency Moody’s said the UK would keep its AAA rating if it stuck to its commitment to make 85bn of austerity cuts. The agency added: that the UK’s “very high fundamental economic and institutional strength results in a very high assessment of economic resiliency." And despite a small drop in the purchasing manager’s index sterling held onto the week’s gains although it failed to create new ground after its rally against the dollar stalled. The pound rose to 1.5192 against the dollar and 0.8260 against the euro.

   The yen gave up some of the week’s gains as prices for many pairs fell to key levels prompting traders to close out their positions. Rumours also circled of intervention by the BOJ to prop up the yen as the Prime Minister Naota Kan is known for his preference for a weaker currency. Then yen saw surges in the past week as investors rushed to place their money in safe havens of which the yen is one of the more favoured, after poor economic data released led to a questioning of the global recovery narrative and a sell off in equities. The yen finished down, to 87.72 against the dollar and 133.29 against sterling.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst