• USD rallies after a positive jobs report
  • ECB is preparing to buy sovereign bonds
  • Bank of England remains dovish
  • Canadian employment report releases today

The US dollar is rallying after the release of the December employment data this morning. The economy generated 252,000 jobs compared to 220,000 expected and pulled the official unemployment rate down to 5.6 percent, which is a few tenths of percentage away from full employment as defined by the Federal Reserve. The Fed’s next monetary policy meeting is on January 28-29th, and it will be interesting to see if today’s positive data will add to a call for early increase in the short term interest rate.

One downside to the report is a drop in the average hourly earnings in December from the previous month. The average hourly earnings dropped by $0.02 to $20.86 and continued to trend flat relative to the inflation rate, suggesting that real earnings have not increased for many Americans in the past few years. Analysts will be watching out for next Friday’s release of the Consumer Price Index report to see if stagnant earnings could potentially become a serious problem for the economy.

jan-9 graph

EUR-USD came under renewed pressure again yesterday. A weak German factory orders data further eroded the market confidence in the Eurozone economy. Additionally, a letter from European Central Bank President Mario Draghi to the European Parliament confirmed that his staff is preparing to buy sovereign bonds or print money as early as the next monetary meeting on January 22nd. As noted in the previous updates, more money leads to a weaker currency.

GBP-USD fell again after the Bank of England left its monetary policy unchanged yesterday morning. This leaves the overnight interest rate at 0.5 percent – where it’s been since March 2009 – and the total bond buying amount at GBP 375 billion. The bank’s accommodative policy stance only affirms the market view that the growth is slowing and the pound will continue to grind down.

USD-CAD is trading in a tight range ahead of today’s release of December Jobs reports. Analysts expect the economy to have produced 20,000 new jobs last month after the drop of 10,700 in November. However, falling oil prices and the potential fallout from resource extraction industries may pose a downside risk for the Canadian dollar today.

Have a great Friday.