[B]Talking Points
• Japanese Yen: Maintains range at 106.50
• Euro: Supported by stable PMI data
• British Pound: PMI Manufacturing plummets to within whisker of contraction
• US Dollar: NFP on tap[/B]
Dollar Stable Ahead of Payrolls; UK Data Points to Rate Cut
Currencies spent a typical pre-NFP night consolidating in tight ranges as traders squared up ahead of the US employment data due later today at 13:30 GMT. In UK the latest economic evidence continues to point to the string possibility of a rate cut as PMI Manufacturing data missed badly to the downside coming within a whisker falling into contractionary territory.
The key manufacturing gauge printed at 50.6 far worse than 52.5 expected. The news pushed cable briefly below the 1.9900 before it rebounded. Nevertheless, if the market becomes increasingly convinced that UK monetary authorities will have to follow their US counterparts by initiating a sustained policy of easing, cable will have a difficult time clearing the 2.000 figure even if US data proves negative.
Meanwhile in the EZ the news was decidedly better as PMI Manufacturing improved to 52.8 from 52.6 the month prior. With industrial sector remaining in an expansionary mode the ECB can afford to maintain its hawkish posture and keep rates at 4.0%. In fact ECB board member Garganas today even hinted at the possibility of raising rates if inflation continues to rise. His remarks made little impact on the market as few players think that ECB will tighten for the rest of this year, but the clear dichotomy between ECB and BOE monetary policy outlooks is likely to continue to push the EURGBP cross higher as it attempts a retest of all time highs.
In US attention will turn to the NFP data and estimates for the January report are particularly hard to handicap. The ADP data suggests the possibility of 100K print or better, but the tepid GDP readings offer little support for such enthusiastic estimates. The labor data will be key to setting markets expectation’s of further Fed easing. If the number prints below 50K, the possibility of yet another 50bp cut in March will become a near certainty and the greenback is likely to suffer more pain as rate differentials move in euro’s favor.
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