The US dollar took a beating and will be searching for any kind of stabiliser in front of the Federal Reserve’s highly-anticipated monetary policy decision. The US currency sank against all of its main rivals following disappointing non-farm payrolls data which may just turn out to be the final piece of the Federal Reserves quantitative easing puzzle.
The European Central Bank kept to its promise of underwriting the euro by announcing an unlimited government bond-buying programme, pushing the single currency to three-and-a-half-month peaks against the US dollar. However, nervousness going into a German vote could spoil traders’ plans to keep tipping their portfolios to the more risky side.
Sterling
Sterling followed the crowd, trampling over a much weakened US dollar to reach four-month highs after fragile US employment data gave investors the clearest hint yet about the Federal Reserve’s monetary policy. Traders, already on the front foot after the European Central Bank’s announcement, poured into riskier assets on the growing prospect of the Federal Reserve adding another layer to its bond-buying supply.
US dollar
The walls closed in on the US dollar, devaluing the greenback to four-month lows on a trade-weighted basis after the latest US jobs data gave the clearest hint yet that a third round of quantitative easing is inevitable. The Federal Reserve appeared recently to have tied its hand on monetary policy to the country’s labour market; promising to launch more bond purchases, dubbed “QE3”, if substandard employment growth threatens the economy.
Euro
The euro’s gains following so-called ‘game changing’ announcement from the European Central Bank is already looking vulnerable ahead of a court ruling in Germany. The single currency earlier jogged to a two-month high against the US dollar after the ECB finally launched its new government bond intervention plan to help ease the crisis. The euro’s jog then turned into a sprint, surging to three-and-a-half-month peaks after below-par US employment data gave investors reason to expect more US monetary easing.
Japanese yen
The yen has slipped after Japan’s second quarter GDP score was revised down a notch, giving Asian investors another reason to suspect a more dovish Bank of Japan in the months ahead.