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Financial Times features Stephen Pope and Spotlight Ideas

Friday May 2nd 2014


May 2, 2014 4:35 pm

Dollar swings sharply on US jobs strength

By Stephen Smith

The dollar swung sharply on Friday after a bumper US jobs number increased expectations of an earlier tightening by the Federal Reserve.

The better than expected US non-farm payrolls data saw the dollar index, a measure of strength against a basket of currencies, jump 0.4 per cent in the wake of the release, only to surrender the gains later in the session.

This left the US currency nursing losses of 0.3 per cent for the week, during which Wednesday’s Fed policy meeting statement that interest rates would be kept close to zero for “a considerable time” after the end of quantitative easing had pushed the dollar to three-week lows.

“This [US jobs] data are very positive for the US dollar against a wide array of currencies including yen and emerging markets,” said Alan Ruskin, of Deutsche Bank. “The main impact will be to truncate the likely period between the end of tapering and the first tightening.”

He added that the data supported “that Yellen six-month comment” – the recent statement by Fed chairwoman Janet Yellen that there would be a period of about six months between the end of US central bank bond buying and the raising of interest rates.

However, other analysts said that the US jobs data should be treated with caution given a significant weather-related rebound.

“Similarly, the fall in the Labor Force Participation Rate explains that the unemployment rate is not the key factor the Fed must follow,” said Stephen Pope, of Spotlight Ideas.

The euro slipped 0.1 per cent to $1.3863 and sterling also by 0.1 per cent to $1.6870 on Friday but both had been weaker by about 0.4 per cent after the non-farms data release.

“The markets’ reaction to the data shows an evolution in market psychology,” said Eimear Daly, of Monex Europe. “The dollar initially rallied as markets priced in rate hike expectations before taking stock and acknowledging that all was not well in the US labour market.”

The renewed dollar selling left the euro 0.2 per cent higher on the week and the pound up by 0.5 per cent.

Sterling had hit a five-year high against the dollar on Thursday on stronger UK economic figures.

“A five-month high in UK PMI Manufacturing allowed sterling to break through the $1.69 level and momentarily hit a peak of $1.6920,” said Ms Daly. “CFTC positioning data suggest the market is extremely long the pound and yet the market can’t get enough of it. Sterling’s unique selling point is simple enough – UK growth.”

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