EUR/US$
The dollar tended to drift lower ahead of the US employment release on Friday with lows around 1.5740 as sentiment was damaged by the failure to hold gains on Thursday.
US non-farm payrolls fell by 80,000 in March which was the biggest fall for close to 5 years while the figures for January and February were both revised lower to show a net loss of over 160,000 jobs for the first quarter.
Unemployment also increased to 5.1% from 4.8% the previous month, although the February figures were distorted lower so the March increase was less sharp than it appeared.
Nevertheless, the payroll data overall will reinforce market confidence that the economy is in recession. There will also be expectations that the Fed will have to cut more aggressively to support the economy. Caution is, however, required as the labour-market data is a lagging indicator and the Fed will need to be forward looking in its assessment of conditions. Futures markets were still leaning more towards a rate cut of 0.25% at the next Fed meeting.
The Euro-zone data was weaker than expected with a 0.5% dip in German factory orders, although annual growth was still healthy. ECB Trichet maintained a tough stance on inflation and issued a clear warning that wage settlements must moderate. Trichet, however, also that was a greater degree of concern over recent exchange rate moves.
There will be caution over exchange rate moves ahead of the G7 meetings at the end of next week and this should offer some dollar protection ahead of the meetings.
Source: VantagePoint Intermarket Analysis Software
Yen
The dollar consolidated above 102.20 against the yen in Asian trading on Friday and consolidated around 102.50.
Domestically, the Japanese authorities have been making further efforts to find a Bank of Japan Governor before the monetary policy meeting and G7 meetings next week. Any resolution of the deadlock would provide some support to the yen, although the impact will be limited. Senior Finance officials also voiced hopes that G7 would reinforce opposition to sharp currency moves at the meetings.
Caution over the possibility of tougher rhetoric to support the dollar should provide some support to the US currency over the next few days. The US currency was still undermined by a drop in US employment and weakened to 101.50 before a recovery to 101.70 with some evidence of profit taking on long Euro positions against the yen.
Sterling
Sterling tested levels above 2.00 against the dollar in European trading on Friday. The UK currency was unable to sustain the gains and weakened back to 1.9930 even though the US currency was weak. Sterling retreated back to around 0.7890 against the Euro.
International developments dominated on Friday, although the UK currency was still unsettled by underlying fears over domestic credit conditions.
There will be further speculation over a Bank of England interest rate at the April 10 meeting which will tend to keep Sterling on the defensive early next week. Any further rally in UK stock prices would provide some protection to the UK currency.
Swiss Franc
The dollar pushed to highs around 1.0130 against the franc on Friday, but retreated sharply to lows near parity following the US employment data. The US currency consolidated around 1.0070 while the franc also settled near 1.5840 against the Euro from lows near 1.5880.
Renewed fears over the US and global economy provided some support to the franc. Nevertheless, Wall Street recovered from initial lows and overall credit-related fears were still lower which curbed demand for the Swiss currency.
Consumer prices rose 0.3% in March with a 2.6% annual increase which will maintain National Bank unease over inflation trends and will tend to discourage speculation over lower interest rates.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The weaker Australian dollar trend was sustained in local trading on Friday with a retreat towards the 0.91 level. Domestically, there was a 0.1% reported decline in retail sales for February after a revised 0.1% decline for the previous month which will maintain expectations that the economy is slowing. There will also be greater confidence that interest rates have peaked, especially with relatively cautious remarks from Reserve Bank Governor Stevens.
There will continue to be some near-term support from an improvement in risk appetite which should curb selling pressure. In US trading on Friday, the Australian dollar gained from firmer commodity prices and a weaker US dollar with a test of levels above 0.92.
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