Plenty to fret about

US jobs fall short

There was nothing in Friday's employment report to delight investors. The fall in the rate of unemployment from 4.4% to 4.3% was decent enough but not, on its own, cause for celebration. The rest of the numbers were disappointing.

Not only was the 138k rise in nonfarm payrolls well below the forecast 182k increase, the previous two months' numbers were downwardly revised.  Taken together, the payrolls data showed 110k fewer jobs than investors had bargained for. An acceleration in wage increases from 2.5% to 2.6% also failed to materialise. The clearest demonstration of market disappointment was an almost instant half-cent markdown for the dollar against the euro, from which it has shown no sign of recovering.

The general view is still that US interest rates will go up this month but the expectation of further hikes beyond that point has faded further. Where previously investors were looking for five upward moves between now and the end of next year, now they expect no more than two. 

Conservative poll lead withers

The last UK general election, the Brexit referendum and Donald Trump's win in November provided ample evidence that opinion polls are not the most reliable indicators of voting outcomes. Nevertheless, sterling has been rattled by recent polls, one of which gave the Conservatives just a one point lead over Labour. 

Even though all the polls indicate that the Tories will win more seats than any other party the size of their majority is being called into question and those doubts are weighing on the pound. Alongside the US dollar, sterling was the weakest performer on Friday and this morning, both of them falling by -05%. For the pound this translated into the loss of two thirds of a euro cent and one Swiss cent.

At the head of the field the Japanese yen and the Australian dollar are up by 0.9%. Both were helped along by the US jobs data and by the dampening effect they could have on the Federal Reserve's appetite for higher interest rates.

Services and politics

In the immediate future it will be the purchasing managers' indices for the services sector that set the tone for the major currencies. Once they are out of the way the focus, at least for sterling, will turn squarely to Thursday's general election.

The UK manufacturing and construction sector PMIs both exceeded expectations. Because of that it is likely that investors will be looking for a similar beat with today's services reading, which is pencilled in at 55.0. If that is the case, a lower figure could be expected to depress the pound. Between that statistic and the opening of the polling booths on Thursday the only UK ecostats will be the house price indices from Halifax and the RICS.

That means there will be little to distract from the political debate and the opinion polls. The less hung the new parliament threatens to be, the better for sterling.