U.S. Dollar Lower as ADP Employment Missed, USD/JPY Heavy

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Dollar weakens against yen and euro today after another disappointment from economic data. The ADP employment report showed 175k growth in private sector jobs in January, slightly below expectation of 195k. December’s figure was revised down from 238k to 227k. US futures point to a lower open and investors are cautious ahead of another piece of important economic data later today, the ISM services. Another downside surprise in US data would possibly trigger further selloff in equities and risk aversion would drag yen crosses broadly lower. In particular, USD/JPY would possibly face 100.61 key support level today.

Later today, Philadelphia Fed Plosser and Atlanta Fed Lockhart are scheduled to speak. Yesterday, a number of Fed presidents talked about the pace of QE tapering with both Richmond Fed President Jeffrey Lacker and Chicago’s Charles Evans stating that it would need “high hurdles” to pause the current pace of tapering. Evans also suggested that “the moderate pace of tapering” together with the “stronger forward guidance” on the policy rate outlook provide “an adequate amount of accommodation for the other foreign markets”. In January, the Fed announced to reduce monthly asset purchases by a further USD 10b to USD 65b, by reducing Treasury purchases to USD 35b per month and MBS purchases to USD 30b per month. This followed the central bank’s announcement in December to reduce it monthly asset purchases to USD 75b.

Sterling was weighed down earlier today by services data. The UK PMI services dropped to 58.3 in January, down from December’s 58.8 and expectation of a rise to 59.0. UK BRC shop price index dropped -1.0% yoy in January. On the other hand, Eurozone services PMI was revised down to 51.6 in January while the PMI composite was revised down to 52.9. Italian PMI services beat expectation and rose to 49.4. Eurozone retail sales dropped -1.6% mom in December versus expectation of 1.5% mom. The main feature in Europe will be tomorrow’s BoE and ECB rate decision. In particular, markets are speculating some actions from ECB to counter deflation risk. There are speculations for announcement of a cut in refinancing rate, another LTRO, or even a negative deposit rate.

New Zealand dollar jumped sharply in Asian session after strong employment data. Q4 seasonally adjusted unemployment rate dropped to 6.0%, down from Q3’s 6.2%, inline with expectations. Employment, grew 1.1% qoq, nearly double of expectation of 0.6% qoq, comparing to Q3’s 1.2% qoq. RBNZ left OCR unchanged at 2.50% last week but governor Wheeler signaled imminent rate hike to curb inflation. And, “the scale and the speed of the rise in the OCR will depend on future economic indicators.”

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