US stocks rallied and the US dollar slumped to a six-week low against the euro and a currency basket after the latest US non-farm payrolls data was considered positive for risk but not strong enough to push the Federal Reserve into tapering its stimulus programme as early as this month. However, comments from several Federal Reserve speakers as well US retail sales data could create some last minute panic in currency markets ahead of next week’s policy announcement from the Federal Reserve on December 18. The euro’s recovery, and move to two-week highs against the pound following European Central bank decision, could prove short-lived if events create fresh concerns about further monetary easing in the eurozone before important PMI data. Sterling’s rally in recent weeks is losing steam ahead of year-end and more traders may look to take profit on the UK currency’s still elevated position should British manufacturing data miss expectations.

Sterling

Sterling slumped to a two-week low against the euro after the European Central Bank decided not to take further monetary action to help support the eurozone economy. Nevertheless, Britain’s fundamental outlook remains positive and the pound could move higher ahead of manufacturing data should data on UK house prices, set for release, underline expectations of a sooner interest rate hike from the Bank of England.

US dollar

The US dollar unexpectedly fell to a six-week low against the euro and a currency basket after the latest US employment data was strong enough to encourage risk taking, but viewed as not robust enough to bring on a sooner-than-expected taper. US non-farm payrolls data showed US employers hiring 203,000 new workers in November, more than the 180,000 analysts had predicted. More importantly, jobs growth helped pull the country’s overall unemployment rate down to seven per cent from 7.3 per cent, a much bigger-than-expected decrease and a five-year low.

Euro

The euro surged to a six-week high against the US dollar and could find further support if investor sentiment data from the euro area and German industrial figures come in strongly. A meeting between euro area finance chiefs will be on the agenda while European Central Bank President Mario Draghi will be speaking on more than one occasion. Draghi may offer markets more insight into future monetary policy.

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