The US dollar pulled back from last week’s lows in front of data which analysts expect will show US non-farm payrolls in September increasing at a faster pace compared to previous months which could revive views that the Federal Reserve may still reduce stimulus this year. However, a US dollar rally may prove short-lived with markets concerned about how the recent US government shutdown impacted the US economy in October, whilst anticipating another political battle in Washington over the coming months. The British pound and euro will be at risk of profit-taking if US labour market data beat expectations, given that both currencies rose sharply against the US dollar last week. The euro hit an 8½ month high whilst the pound came within 0.3 per cent of January 2 peaks against the US currency.

Sterling

The British pound slipped slightly, coming away from last week’s highs as investors await a number of US economic reports which have been held back because of the US government shutdown. Following the fiscal freeze in Washington last week traders had taken sterling to within 0.3 per cent of its highest level since January 2 against the US dollar on concerns that budget battles will delay Federal Reserve tapering. A positive jobs figure could persuade traders to take profit on the pound’s recent run of gains.

US dollar

Investors may pause on recent selling of the US dollar if data on US non-farm payrolls recover fading hopes of the Federal Reserve reducing monetary stimulus this year. Although the overall unemployment rate in the US is likely to have stayed at 7.3 per cent last month, solid payrolls may raise expectations about the jobless rate falling and the Fed moving closer to cutting its $85 billion-a-month of asset purchases. However, the quality of the jobs increase will also be of interest in terms of full-time employment versus part-time. Last week, the US dollar tumbled to an eight-month low against a currency basket as markets adjusted to the prospect of the Fed continuing its quantitative easing programme for longer after yet another budget fight in Washington which shut the government for 16 days.

Euro

The euro rallied sharply last week after budget fighting in Washington and the likelihood of another US political battle in December encouraged traders to sell the US dollar and buy the single currency. Amid concerns that the Federal Reserve will now have to keep injecting $85 billion per month into the US economy until next year comes at a time where the European Central Bank seems less likely to expand its monetary easing position.