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FX markets are currently in a holding pattern ahead of Friday’s US jobs numbers, but there are some distractions between now and then. The US ADP numbers today, which are seen as a lead indicator of the official numbers on Friday, failed to indicate the fall in the official data seen on Friday, so markets would do well to take today’s numbers with a rather large pinch of salt.

On the major currencies so far this week, it is the Aussie that stands out, after yesterday’s change in tone from the RBA. The US dollar has been on the defensive against most other majors this week, the main exception being sterling, cable is currently flirting with the 1.63 area. The PMI data today for the service sector will be watched to see if the weaker tone seen in the manufacturing release on Monday is reflected through the majority of the economy.

The theme of emerging markets remains in the background. The currencies that were in focus last week (Turkish Lira, South African Rand) have stabilised and many other emerging currencies have also gained. Markets are still grappling with whether this is a true emerging market ‘crisis’ or one born from Fed policy.

But it can also be said that we are returning to the volatility in markets that was more the norm and especially so for EM currencies. To this end, unless we see a very weak jobs report this week, the Fed will likely want to continue with its policy of tapering, ensuring that markets get used to the winding down of asset purchases, rather than have the uncertainty of a “stop/start” tapering process.

Further reading:

UK Services PMI: 58.3 in January – small disappointment

NZD/USD well supported on excellent job numbers