US Job Data Reigns in Currency Rises

Suspicions and gossip, twisted Euro trading today. The possibility of Greek default remains an exponentially powerful seed and any news that soothes this fear momentarily relieves Euro volatility. Public reports that Germany has a crisis management strategy in place in the event of default, reassured the forex markets. This was topped by politically unified words of wisdom from Kurt Lauk business head of the German Christian Democratic Union, emphasizing the importance of debt restructuring. Market suspicion which arises from political division has at least for the time being, been evaded.
 
Once again the fate of the US dollar takes centre stage in the forex world as financial market’s fear that the world’s largest economy may be tumbling into uncertainty. A positive US jobs report did temporarily buoy markets with the number of people applying for unemployment assistance dropping from 441k to a revised 404k, triggering a greenback rise amongst most major forex pairs. The impact on the financial markets remains more of a trickle, than a waterfall with the buzz of earning data still holding a grasp on the US economy. Major financial giant Goldman Sach’s saw a 52% drop in earnings. This figure combined with quarterly losses in government backed mortgage company Fannie Mae and Swiss Bank UBS contributed to a dismal financial picture.

Meanwhile, Sterling continues to paint a blank canvas with traders still looking to fill in, the mystery Bank of England gaps. The market knows an interest rate hike is highly likely but key UK economic figures are seemingly passing the buck. Today Adam Posen dismissed Bank of England responsibility stating a back to basics inference that the Bank of England is designed to ensure price stability but that this does not equate to inflation management. Any interest rate adjustment will have wide reaching consequences for Sterling value.

The Australian Dollar is carrying the weight of Chinese monetary change, as Chinese policy remains inextricably connected to the Aussie export industry, a falling commodities industry also takes down the value of the Aussie Dollar.

For the first time this week the solidity of the Japanese Yen seems to have faltered allowing the US dollar to regain some lost ground. The primary deficit balance, a gage assessing to what extent taxes and other revenues can sustain the Japanese deficit is predicted to reach ¥23.2 trillion in 2020. This type of prediction puts increasing pressure on the Japanese Prime Minister, Naoto Khan’s mission to create a primary balance surplus. The reality of this goal is not only called into question by the report but rings the warning knell of possible taxation increases for the Japanese people in order to sustain this path. The markets may well be bingeing on Yen stability but the path ahead could be littered with a few financial hurdles. 

Market Insight: 20.02.11