Softer Fed, softer dollar


The dollar was front and centre in Friday's action. US nonfarm payrolls went up by 312k in December, having been expected to increase by 180k. With revisions to the previous two months the total was 190k above forecast, almost a full month's worth of extra jobs. The figures were positive for the USD, in that they would support the Fed's campaign for higher rates.

Or not. Two hours later the Fed chairman altered the mood dramatically. He spoke in cautious terms about "muted inflation readings" and professed a readiness to "shift the stance of policy and to shift it significantly" if conditions were to make it necessary. Investors inferred that the Fed chairman is minded to pause its tightening, even though the president wants him to do so. The dollar quickly fell back, eventually putting in the day's weakest performance.


Today's economic data from the euro zone were hardly better than Friday's.  A decent 1.4% monthly increase in German retail sales for November was balanced by a 1.0% fall for factory orders, putting them 4.3% lower on the year. Italy reported that its public sector deficit for the third quarter was 1.7% of GDP, almost three times the shortfall in Q2. Investor confidence in Euroland scored a -1.5 on the Sentix barometer in January, a deterioration from December's -0.3 but better than the forecast -2.8. Euro zone retail sales increased by 0.6% in November, beating expectations.

The numbers were vaguely positive for the EUR but the heavy lifting had already been done by the Fed chairman on Friday, when his comments gave back to the EUR the half-cent it had lost to the payrolls number.  It is 0.3% ahead on the day.


It all came together for the Loonie on Friday. The net change in employment showed 9.3k new jobs in December while the rate of unemployment remained at its 5.6% low.  Both figures were better than analysts had predicted. Oil prices helped too, with WTI up by 2%. The most obvious boost for the CAD was Jerome Powell's honeyed words about US monetary policy, which served to stimulate investors' appetite for "risky" commodity-related currencies. 

The CAD spent most of the day on the advance, building on Thursday's improvements. It strengthened by a net 0.6% against the USD, putting it 1.9% higher on the week.


As Members of Parliament returned from their vacation they began to stir the Brexit beast back into life, and investors were not too dismayed at the noises it made. The prime minister told a TV interviewer Sunday that the postponed vote on her withdrawal deal will "definitely" be put to a vote in the Commons next week. Investors expect it to be defeated, and are guardedly optimistic about what will happen next. 200 MPs, of all persuasions and political hues, have asked the prime minister to rule out a no-deal Brexit. They could conceivably force her to adopt that position with an amendment to tomorrow's finance legislation. 

Britain is conspicuously absent from today's ecostat agenda and the pound looked steady during the early London session. Overall the GBP is 0.6% higher against the USD.


The comments on Friday by the Fed chairman, which were positive for risk-appetite and the commodity currencies, had the opposite effect on the JPY.  Upbeat investors have little interest in safe-havens and sandbags; they want a piece of the action. That is not to say the JPY took a beating - whatever else they learned in the last month or so, investors surely took on board the fact that prices are changing direction more frequently and unpredictably than usual. Reduced need for safety is not no need for safety. The JPY is just 0.2% lower on the day.

After an exceedingly quiet week on the statistical front Japan opened today with the Markit services sector purchasing managers' index. It came in at 51.0, a point and a quarter lower on the month. The JPY moved higher after the figure was released, though probably not as a result of it.

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