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    Dollar continues rising on Non-Farm Payroll recovery

    USD

    A lack of data on Monday meant the dollar continued to be influenced by Friday’s Non-Farm Payrolls, which had a positive effect on the currency overall, because the 223k result only just fell short of 228k expectations – and importantly compared much favourably to the disastrous month previously.

    The previous month’s figure was actually revised down even further on Friday, from 126k to 85k, showing hiring in March was even worse. Although this took the shine off Friday’s recovery, it didn’t prevent investors from breathing a sigh of relief that April’s figure was back in the 200s.

    The little data there was on Monday consisted of the Labour Market Conditions Index in April, which showed a -1.9 drop compared to the -1.8 previously. The Index is a aggregate of 19 labour market metrics, and so gives a broader picture of how the labour market is fairing.

    EUR

    The euro weakened on Monday as concerns about the outlook or Greece continued to weigh. Investors were concerned the country would not be able to repay a 750m debt to the IMF, and there were generally low expectations about what could be achieved at the euro-group’s meeting in Brussels.

    At the time of writing no statement had been made about the outcome of the meeting of the euro-zone Finance Ministers and the negotiation team from Greece euro-group, although the Greek Finmin Yanis Varoufakis had said a deal “was close.”

    Reports that Greece had made its 750m repayment to the IMF were also eventually verified, although this seemed not to help drive a recover in the euro.

    There was considerable commentary from various members of the ECB’s governing council during the day, including ECB’s Nowotny, who said he did not think the ECB should be a lender of last resort to “countries” – but only to banks.

    ECB’s Costa said he thought the euro-zone recovery was underway, and whilst unemployment has eased from its heights in 2014. Nevertheless it is still far too high, and its possible his optimism is misplaced.

    ECB’s Mersch was even more optimistic, saying the euro-zone economy was at a major turning point, that deflation was a thing of the past, QE was more efficient than expected and bank-lending was slowly turning the corner. He further added that market participants: “underestimated the will to save the euro.”

    GBP

    The pound soared on Monday after market’s digested the outcome of the general election. The results surprised investors by returning a conservative majority government
    .
    Opinion polls had shown the two largest parties neck-and-neck in the run up to the election, which had led to expectations that there would be no outright winner. The uncertainty over which party would win and how they would negotiate a deal with a partner to rule in a coalition dampened demand for sterling in the run up to the election.

    However, in the end the conservatives won a stable majority – albeit a small one – and this led to an upswing in the pound.

    Despite this there are potential headwinds resulting for the Conservative win. They are a right-wing party and are therefore expected to be uncompromising in cutting public spending; the resulting fiscal contraction is expected to lead to the BOE refraining from tightening policy – at least according to analysts at UBS.

    Another potential headwind is the uncertainty caused by the referendum the party promised voters on membership of Europe. The possibility of a Brexit could be a negative factor impacting on sterling in the future.

    JPY

    The Japanese market has been quiet since traders returned to their desks last Thursday after a 3-day holiday. The yen weakened some 40 points versus the dollar during the Asian session and was trading at 120.00 per dollar in late trading in New York.

    The Bank of Japan’s pushing of its inflation target is adding to the shifting global monetary policy picture which has sparked a sovereign debt rout.

    The nations 10-year yield has climbed almost 10 basis points since BOJ Governor Kuroda said on 30 April that he sees the price goal being reached around the first half of the 2016 fiscal year. When Kuroda introduced his bond-buying programme in April 2013 he said the target would be reached in about two years. The change in tone is an admission of failure that suggests the need for further easing, which is technically difficult and requires a new policy regime according to Tokai Tokyo Securities Co.

    Consumer prices rose only 0.2% in March yoy after no increase in February excluding the effects of the sales tax hike last April. On April 30 the BOJ cut its estimate for core inflation to 0.8% for the year through March from a January forecast of 1.0%.

    Kuroda said last week that there is no change to the central bank’s pledge to meet its objective as soon as possible even, as he said, there has been a delay in reaching the inflation goal.

    USD

    A lack of data on Monday meant the dollar continued to be influenced by Friday’s Non-Farm Payrolls, which had a positive effect on the currency overall, because the 223k result only just fell short of 228k expectations – and importantly compared much favourably to the disastrous month previously.

    The previous month’s figure was actually revised down even further on Friday, from 126k to 85k, showing hiring in March was even worse. Although this took the shine off Friday’s recovery, it didn’t prevent investors from breathing a sigh of relief that April’s figure was back in the 200s.

    The little data there was on Monday consisted of the Labour Market Conditions Index in April, which showed a -1.9 drop compared to the -1.8 previously. The Index is a aggregate of 19 labour market metrics, and so gives a broader picture of how the labour market is fairing.

    EUR

    The euro weakened on Monday as concerns about the outlook or Greece continued to weigh. Investors were concerned the country would not be able to repay a 750m debt to the IMF, and there were generally low expectations about what could be achieved at the euro-group’s meeting in Brussels.

    At the time of writing no statement had been made about the outcome of the meeting of the euro-zone Finance Ministers and the negotiation team from Greece euro-group, although the Greek Finmin Yanis Varoufakis had said a deal “was close.”

    Reports that Greece had made its 750m repayment to the IMF were also eventually verified, although this seemed not to help drive a recover in the euro.

    There was considerable commentary from various members of the ECB’s governing council during the day, including ECB’s Nowotny, who said he did not think the ECB should be a lender of last resort to “countries” – but only to banks.

    ECB’s Costa said he thought the euro-zone recovery was underway, and whilst unemployment has eased from its heights in 2014. Nevertheless it is still far too high, and its possible his optimism is misplaced.

    ECB’s Mersch was even more optimistic, saying the euro-zone economy was at a major turning point, that deflation was a thing of the past, QE was more efficient than expected and bank-lending was slowly turning the corner. He further added that market participants: “underestimated the will to save the euro.”

    GBP

    The pound soared on Monday after market’s digested the outcome of the general election. The results surprised investors by returning a conservative majority government
    .
    Opinion polls had shown the two largest parties neck-and-neck in the run up to the election, which had led to expectations that there would be no outright winner. The uncertainty over which party would win and how they would negotiate a deal with a partner to rule in a coalition dampened demand for sterling in the run up to the election.

    However, in the end the conservatives won a stable majority – albeit a small one – and this led to an upswing in the pound.

    Despite this there are potential headwinds resulting for the Conservative win. They are a right-wing party and are therefore expected to be uncompromising in cutting public spending; the resulting fiscal contraction is expected to lead to the BOE refraining from tightening policy – at least according to analysts at UBS.

    Another potential headwind is the uncertainty caused by the referendum the party promised voters on membership of Europe. The possibility of a Brexit could be a negative factor impacting on sterling in the future.

    JPY

    The Japanese market has been quiet since traders returned to their desks last Thursday after a 3-day holiday. The yen weakened some 40 points versus the dollar during the Asian session and was trading at 120.00 per dollar in late trading in New York.

    The Bank of Japan’s pushing of its inflation target is adding to the shifting global monetary policy picture which has sparked a sovereign debt rout.

    The nations 10-year yield has climbed almost 10 basis points since BOJ Governor Kuroda said on 30 April that he sees the price goal being reached around the first half of the 2016 fiscal year. When Kuroda introduced his bond-buying programme in April 2013 he said the target would be reached in about two years. The change in tone is an admission of failure that suggests the need for further easing, which is technically difficult and requires a new policy regime according to Tokai Tokyo Securities Co.

    Consumer prices rose only 0.2% in March yoy after no increase in February excluding the effects of the sales tax hike last April. On April 30 the BOJ cut its estimate for core inflation to 0.8% for the year through March from a January forecast of 1.0%.

    Kuroda said last week that there is no change to the central bank’s pledge to meet its objective as soon as possible even, as he said, there has been a delay in reaching the inflation goal.


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