The euro and other high risk currencies produced a stunning rally after US non-farm payrolls data blew away market forecasts which also complimented growing optimism about the European Central Bank taking a more active role in tackling Europe’s government debt crisis. The safe haven US dollar suffered heavily from “risk-on” reaction which stretched across global financial markets, sinking to one-month lows versus the euro and against a currency basket. Nonetheless, with Greece still simmering in the background and markets still less than confident about Spain, the greenback could quickly snap back .
Sterling
Sterling opens its account at one-month lows against the euro and near three-week troughs versus a currency basket into risky stocks and currencies which the pound failed to track, given the Bank of England’s discouraging monetary policy bias. An energising US employment report helped facilitate action which did allow the pound to register small gains against its safer rivals like the Japanese yen; however, most traders were still reluctant to overlook Britain’s economic woes before quarterly inflation report which could prove damaging for sterling’s medium-term outlook.
US dollar
The US dollar came under a mountain of pressure, sinking to one-month lows versus a basket of currencies following the latest US unemployment data which encouraged both risk taking and expectations of more monetary easing by the Federal Reserve. Currency markets reacted spectacularly to data showing a 163k jump in US non-farm payrolls in July which was the biggest increase since February, and a much larger gain than the 100k investors had earmarked for the release.
Euro
The euro surged to one-month highs against the US dollar after forecast-beating US jobs data spurred demand for more risky currencies while investors also grew more confident about the European Central Bank’s intervention pledge. After doing a little more digging into the ECB’s monetary policy statement, traders appear to be betting that with Spain still suffering heavily, government bond intervention by the ECB may just be around the corner.
Japanese yen
The yen tumbled across the board and fell to one-month lows against the euro as Asian markets extended US data-inspired risk rally; selling defensive currencies in favour of more appealing investments. The yen is also under additional strain heading into Bank of Japan monetary policy announcement with some analysts expecting Japanese policymakers to introduce more yen-weakening measures.