Not to jinx but a nascent sense of calm washed over world financial markets yesterday, allowing the dollar to reclaim lost ground to the safe haven yen and push broadly higher. China’s discarding of circuit breakers that halted trading when stocks plunged seven per cent helped to restore order across global stock markets with the country’s main stock index ending yesterday with a solid two per cent gain. Oil, markets’ other chief concern at the outset of the year, rebounded from 12-year lows which helped commodity currencies from Australia, New Zealand and Canada steady. Traders also gravitated towards America’s currency ahead of the year’s first look at monthly hiring which, if strong, could add bullish fuel to the dollar and keep the Federal Reserve on track to coax US borrowing rates higher this year.
Euro
A soggier set of data from Europe’s biggest economy and a nascent sense of relief over China and oil prices weighed on the euro. The euro tends to outperform when global pandemonium flares as skittish traders shift the carry trade of using the low-yielding euro to fund bets on higher yielders. German factory output unexpectedly contracted, down 0.3 per cent in November.
Sterling
A floundering UK pound kept near five-year lows against the dollar with negative sentiment keeping in near multi-month lows against the euro. Data yesterday showed Britain logged a smaller trade gap of £10.6 billion in November, down from £11.2 billion. But the news wasn’t enough to allay worries about slowing growth, keeping a UK rate hike off the radar for now. Uncertainty and a sense that Britain might have one foot out of the EU has added to the UK currency’s travails.
US dollar
A bullish US jobs report transported the dollar to fresh session peaks as it dialled up pressure on the Fed to raise interest rates in the months ahead. America ended 2015 on a hiring spree, with non-farm payrolls up a sharp 292,000 in December, nearly 100,000 more than forecasts. Unemployment held at five per cent as expected. Flat wage growth, though, will limit the dollar’s payrolls-inspired gains. Job growth in October and November got revised up by 50,000. America’s rock solid fundamentals bode well for the dollar going forward.