Euro and Pound Lifeless Ahead of NFP Blair in Trouble?

· JPY runs stops at 121.00 and stalls
· EUR PPI in line treads water
· GBP Construction PMI shows strength
· USD NFP on tap

A typical night of absolutely no price action in the FX markets ahead of the NFP release at 13:30 GMT today. Both EURUSD and GBPUSD barely moved as overnight economic data provided no drama whatsoever. In Euro-zone the PPI numbers printed in line registering a 4.1% gain on a year over year basis as high energy costs continue to carouse through the system. In UK the Construction PMI data printed a bit better as gains in employment and new orders helped to boost the number.

The UK economic news continues to shine and should provide support for the pound going forward, however, recent press reports that Tony Blair was twice interviewed by Scotland Yard with respect to a widening investigation of corruption in his administration could become a very serious problem for the currency if the story gathers momentum. Although he is no longer the Teflon politician of the past, Mr. Blair continues to command wide respect on the global stage. If he were forced to resign as a result of these events, the political turmoil would almost certainly create volatility in the pound and its crosses. For now, the matter remains just idle speculation, but if additional news is released next week that appears prejudicial to his case, politics, not economics could become the primary driver of trade in sterling going forward.

Meanwhile, depending on how it prints, today’s NFP data could set the direction of the EURUSD not only for today but for next week as well. With US data relatively mixed (stronger GDP, but weaker ISM) the market remains uncertain as to the true state of the US economy. If payrolls meet or beat their expectations, dollar bulls would have the ammunition to argue that the recent turn for the better is underpinned by solid fundamentals. On the other hand if the numbers print weak, the bear’s position that GDP data was far more a function of the fluky weather patterns rather than true economic strength will gain in credibility.

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