Dollar benefits as US private sector employment figures improve as market awaits non farm payroll

Tom Tong02/Nov/2012Currency Updates


Sterling rose to its highest in a month against a basket of currencies on Thursday as a weaker-than-expected manufacturing survey did little to dent cautious optimism about the UK economy. The data highlighted risks to the UK’s tentative economic recovery but investors were still upbeat on sterling after third-quarter gross domestic product data last week showed the economy emerged from recession. Sterling was further supported by the buying of corporates and Asian real money.

The Swiss central bank aggressively diversified into UK gilts in the third quarter, providing a boost to sterling, but the end of this process could be damaging to the currency. The SNB more than doubled its holdings of sterling in the third quarter of the year in an effort to reduce its exposure to the Eurozone, cutting its euro reserves from 60 to 48 per cent and increasing sterling reserves from £8bn to £18.9bn.


Scepticism is starting to surround the euro as a verdict that the Greek pension reforms requested by the troika lenders in order for Greece to secure more bailout cash may be unconstitutional. Greek pension reform demanded by foreign lenders may be unconstitutional, a Greek court ruled on Thursday, in a setback to the government’s efforts to seal a deal on an austerity package needed to secure aid. This is of course coupled with the fact that Spain is still yet to announce whether another bailout package is in order.


The dollar rose slightly higher on Thursday following mixed US economic reports with the U.S. private-sector employment increasing by the most in eight months in October, while initial jobless claims fell more than expected last week. A separate report showed U.S. consumer confidence rose in October to its highest in more than four years as Americans were more upbeat about improvements in the labour market; however the US manufacturing sector PMI came in less than forecast in October. Whilst Investors mostly took comfort from the encouraging U.S. jobs reports that suggest that today’s non-farm payrolls has a smaller chance of disappointing as markets are waiting in angst for the key data announcement, with US Dollar underperforming risk-related commodity currencies, such the Australian, New Zealand and Canadian dollars, amid signs of an improvement in the US economy, as ADP figures showed a rise in private sector employment in October.


Written by Tom Tong

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