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Unintended consequences

Loonie up

If pushed to pick one statistic from the torrent of data at the end of last week, it would have to be Friday's US nonfarm payrolls. They increased by 304k in January, almost twice the forecast number. So, which currency did best on Friday? Well, the Canadian dollar, obviously.

The Loonie strengthened by an average of 0.5% against the other majors, having hardly budged on Thursday. There was a noticeable jump after the US employment data came out. The move was not obviously logical. Yes, a refreshingly vibrant US economy ought to have a positive knock-on effect for America's closest trading partner, but it should not be to the detriment of the United States dollar itself. 

So why? The much stronger than expected US employment picture sent oil higher. There was an almost immediate 50-cent jump in the price of West Texas Intermediate (WTI) crude and it added a further dollar and a half before the end of the day. The Canadian dollar responded well to higher oil prices - and vice versa - and on Friday it picked up a quarter of a US cent and went up by a cent against sterling.

Yen down

There was no immediate connection between the US jobs numbers and the yen's decline. The yen did move a little lower at the time, but it was not until an hour and a half later that it really went into reverse. Its main triggers were a different set of US economic statistics.

The two US purchasing managers' indices, from Markit and the ISM, came in at 54.9 and 56.6. Both were better than forecast and the ISM measure was more than two points higher on the month. At the same time, the Michigan University consumer sentiment index showed up half a point higher than expected. Altogether, the US ecostats reassured investors that things might not be as bad as they had feared. And that reassurance made them less interested in the safe-haven yen. 

Sterling's only opportunity on Friday was the UK manufacturing PMI. And it fluffed it. At 52.8, the reading was a point and a half lower on the month and three quarters of a point below forecast. It did not make the day a total washout for the pound though. It was just about unchanged against the Swissy, the Aussie and the Kiwi but lost a quarter of a cent each to the US dollar and the euro.

US factory orders

Data released overnight showed New Zealand building permits jumping 5.1% in December after the previous month's 1.9% decline. China's Caixin services PMI was lower on the month but ahead of forecast at 53.6. Later today the US Census Bureau will reduce its shutdown-related backlog with the release of November's factory orders. 

There is nothing of consuming interest on the list. Britain's construction PMI is pencilled in at 52.6, a couple of ticks lower on the month. Euroland investor confidence is supposed to have improved slightly from -1.5 to -1.1. US factory orders should have increased by a monthly 0.2%.

Nothing there for investors to fret about, then. But they might have something to say about Nissan scrapping plans to build the new X-Trail in Sunderland.

CAD pulled ahead by oil prices

CAD pulled ahead by oil prices

USD profits modestly from strong employment data

USD profits modestly from strong employment data

CHF unchanged against sterling

CHF unchanged against sterling

JPY lags - safe-havens not in demand

JPY lags - safe-havens not in demand

EUR steady against US dollar

EUR steady against US dollar

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