The dollar traded mixed on Friday although positive data helped curb recent weaknesses in the currency. Non-Farm Payrolls (NFPs) data showed a dramatic rise in the number of people in work by 243k versus the 150k consensus in January. The Unemployment Rate fell to 8.3% versus 8.5% previous raising hopes the U.S economy was successfully on the road to recovery. The data reduced the likelihood of the Fed increasing its stimulus programme as had been feared previously and therefore led to expectations of a rise in the dollar. Other data showed Avg Hourly Earnings met estimates at 1.9% YoY; Avg Weekly Hours rose slightly to 34.5 vs 34.4 previous; Manufacturing Payrolls as a subset rose by 50k vs 12k expected; Private Payrolls increased by 247k versus 160k estimated; Factory Orders increased by 1.1%, which was less than the 1.5% consensus and ISM Non-Manufacturing Composite Index rose to 56.8 vs 53.2 previous.

   The euro rose on Friday, although gains were comparatively small compared to previous days as fresh debt fears weighed. Hopes dwindled of a swift resolution to Greek debt talks after Denmark and Germany rejected the idea of taking a haircut on their Greek holdings and this continued to pressure an OSI (Official Sector Involvement) deal. Rising borrowing costs for Portugal as yields on its bonds rose to near crisis levels also weighed as investors feared it too would requiring a write-down on its debt. On the data front annualized Euro-zone Retail Sales in December showed a marked fall of -1.6% versus the -1.3% expected and -1.5% previous; Euro-zone Composite PMIremained the same at 50.4 – also in line with expectations; whilst Euro-zone PMI Services fell to 50.4 versus 50.5 previous. German PMI previous fell to 53.7 versus 54.5 expected; French Services PMI rose to 52.3 vs 51.7 and Italian Services PMI 44.8 vs 45.4 (a rise had been expected).

   The pound managed to strengthen versus most of its major counterparts after better-than-expected Services PMI data helped brighten the outlook for the U.K economy. The strong print supported sterling as it reduced the chance that the BOE would see it as necessary to introduce further quantitative easing (QE)at the next rate meeting in February in order to stimulate growth. January Services PMI came out at 56.0 versus 53.3 expected and 54.0 previous - the fastest increase in 10 months. Other data showed a rise in Official Reserves $2477m versus -$1943m previously. Meanwhile the Lloyds Business Barometer in January fell to -11 versus -23 previous. Next week's rate meeting on Thursday presents us with potentially the most important event for the pound in the 1st quarter, given February has been widely earmarked as the moment the BOE will pull their QE trigger, however the mainly positivePMI's this week (construction fell short of expectations) makes it less of a sure thing, and trading in sterling prior to the release could remain muted due to the uncertainty.

   The yen fell on Friday after the strong U.S jobs report helped lift risk sentiment and took pressure of the dollar as it reduced the likelihood that the Federal Reserve would introduce further quantitative easing. The dollar-yen pair had been trading near intervention lows around the 76 level mainly caused by the perception that the interest rate differential between the two currencies would narrow following the ultra-low interets rate pledge given by Fed Chairman Bernanke at the recent FOMC. If it had not been for Non-Farm Payrolls lifting the dollar higher the prospect of intervention had been increasing following further verbal warnings from the Japanese Finance Minister JenAzumi who said on Friday: "I am strongly concerned about whether the one-sided yen rise is reflecting Japan's Fundamentals." Strong PMI data from the U.K and some easing of euro-zone fears also helped the counterparts strengthen versus the yen. The yen has a heavy economic docket next week, starting with Machine Tool Orders on Monday; Leading Index and Trade Balance on Tuesday; then Eco Watcher's sentiment survey and Consumer Confidence on Wednesday and Thursday respectively.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst