ECB Rumours Overshadow US jobs report
The headline US employment report was stronger than expected with an increase in non-farm payrolls of 235,000 for February compared with an expected figure of 195,000 but counter-intuitively, the dollar lost ground on the data.
This reflected the fact that markets had already moved to price in a Federal Reserve rate increase next week and also that markets were hoping the US data could have been even stronger after a very robust release for the ADP employment report. The increase in average earnings was also slightly weaker than expected.
Late in European trading, the Euro received a further boost following source reports that there had been a discussion during Thursday’s ECB meeting as to whether interest rates could be increased before the bond-purchase programme is completed at the end of 2017.
The reports suggested that some policymakers within the ECB had suggested raising rates before the end of QE stimulus, but that the discussion was brief and there was no broad support for the idea.
In this context, there was little of substance in the report, but there was still a significant market move.
EUR/USD moved higher to the 1.0700 area, the highest level for a month. The Euro also gained firm support on the crosses with EUR/GBP strengthening to fresh seven-week highs of 0.8780. EUR/CHF strengthened to 3-month highs near 1.0800 with EUR/NZD at 4-month highs above 1.5400.
Markets remain extremely sensitive to potential turning points in economies and monetary policy given the importance of market timing and the need to avoid getting on the wrong side of a trade. Any hint that the ECB could move towards a tighter policy would be liable to have a very important impact, especially as there will be the risk of an aggressive covering of short Euro positions.
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