This week in the markets: Confusion over NFP and
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This week in the markets: Confusion over NFP and

By Alex Edwards at  UKForex, an international money transfer service.

The pound steadily advanced against the USD for the most part of this week.   UK Services PMI printed weaker than expectations  on Monday  but it was still a comparatively strong reading.   Key central bank statements delivered few surprises later in the week. According to the FOMC Minutes, most policymakers were in agreement that improving labour market conditions, lessening fiscal drag and the most recent budget agreement has bettered the outlook for US economic growth.   Most were also in favour of reducing the pace of asset purchases by $10 billion at every FOMC meeting between now and the end of the year.

On Thursday  – and as expected – the Bank of England left monetary policy unchanged.   It was not until  Friday  that GBP/USD dropped after the release of weaker than expected UK manufacturing and industrial production data.

US Non-Farm Payrolls were released  on Friday  afternoon, but the data was confusing –   the print was a lot weaker than expected at 74K, whilst the unemployment rate dropped to 6.7%.   Markets were uncertain about how to react at first, but the USD lost ground within half an hour of the release and GBP/USD pushed back higher towards a break above 1.65.   Although the unemployment rate is getting close to the Fed’s   threshold, they will be looking closely at the weak payrolls number and will still view this data as inherently weak – not good for the USD, and far from enough for the Fed to take a more aggressive approach to its tapering program.

The euro remains resilient.   Alongside NFP, the ECB press conference was the main event of the week.   After announcing that the ECB’s monetary policy would remain unchanged, President Draghi delivered a more dovish accompanying statement.   He said that the central bank stood ready to consider all available options and was monitoring money market conditions closely.   As for inflation, he said that the risks were balanced, acting as something of a relief. Nevertheless, with the weaker than expected EU CPI data released earlier in the week, the markets weren’t totally convinced.   There was some hinting at an LTRO, although Draghi did also say that several options would be considered.   He went on to state “we used firmer words for indicating the strengthening of our forward guidance, which basically means we reiterate our decisiveness to act if needed”.   EUR/USD fell to a low of 1.3549 as a result but then retraced towards the end of the dayon Thursday.   There has of course been a reaction to the NFP data too.

Next week’s main market events includes UK and US CPI.   The German Federal Constitutional Court is also due to announce its ruling on the constitutionality of the European Central Bank’s Outright Monetary Transactions policy, so we may see some volatility on EUR/GBP as well as some follow through from this week’s US employment data.

Further reading:  NFP Analysis: Uncertainty about the US economy and the unemployment rate