All eyes have been on the euro for the past two weeks as a meeting of the European Central Bank was the biggest upcoming economic event. News from the ECB turned out to actually be pretty uneventful but the euro hit the best one day rise in a month- market players are reassign the stance the ECB is taking on bond buying. This comes as data about U.S. jobs actually hurts the U.S. dollar, and the yen moves into a safety position for all of the major currencies after it took a tumble on Friday. Find out what is exactly is going on below.
The dollar and yen tumbled on Friday after a report showing the U.S. economy added the most jobs in five months in July dampened demand for traditional safe-haven currencies.
The euro headed for its best one-day rise in a month against the dollar. Its rally began before the jobs data as investors took a more optimistic view of Thursday’s European Central Bank meeting, which signaled further support for debt-stricken Spain and Italy.
A report was released on the U.S. economy which showed that the U.S. added a tremendously amount of jobs in July- the most that have been added in nearly five months. This actually sent the dollar into a tumble because the news was not good for those who wanted to buy a riskier currency. The same can also be said for the perceived safety of the yen- the yen also took a nose dive on Friday.
To counter the falls low trades of the U.S. dollar and the yen, the euro skyrocketed against the U.S. dollar- it was the highest one day rise it’s had against the dollar. The euro actually started to rise before officials revealed data about the U.S. economy- that was coupled with the new hopeful outlook as a result of optimism from the ECB. The meeting on Thursday called for more support to help the Spanish and Italian’s debt crises.
The U.S. Labor Department reported employers added 163,000 jobs in July, beating expectations for a 100,000 gain. The surprisingly strong increase also lifted higher-yielding, commodity-linked currencies, with the Canadian dollar breaking parity against the U.S. currency for the first time in more than two months.
“The dollar and yen are losing ground across the board this morning on an unexpected rebound in risk appetite going into the weekend,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.
Analysts said the data could dampen expectations for a third round of quantitative easing by the Federal Reserve, which some had hoped would come as early as next month, but an increase in the jobless rate to 8.3 percent in July will probably keep expectations of additional monetary stimulus intact.
“Overall, the greater-than-expected increase in payrolls should win the day and act as some support to risk assets even if it does diminish the chances of QE3 as early as September,” said Andrew Grantham, economist at CIBC World Markets in Toronto.
Basically, good news about U.S. jobs means that the Fed could back off from quantitive easing- ceasing any further rounds of changes for now. Stimulus funds are still expected to be requested as the jobless rate remains around 8 percent for July.
The dollar index, which tracks the greenback versus six other major currencies, fell 1.2 percent to 82.324, on pace for its biggest daily drop since the end of June.
The dollar gained 0.5 percent against the yen, to 78.58 yen , after hitting a two-week high of 78.77.
The Japanese currency fell sharply across the board, losing more than 1 percent against the Australian, Canadian and New Zealand dollars. It lost more than 2 percent versus the Mexican peso and fell 2.6 percent against the South African rand.
Do you think the forex market will be busy this week?