The euro fell across the board yesterday after the ECB left interest rates on hold and Trichet hinted that a rate rise at the bank’s June meeting was unlikely, disappointing those in the market who had been looking for a hawkish tone. After a sharp drop over the day the euro stabilised overnight, but still has some way to go to claw back all of its losses, with the dollar also supported by sharp falls in oil prices. Given Trichet’s more measured tone, it may remain under pressure near term but dollar fundamentals remain negative. Indeed, the focus will switch to the US today with the non-farm payrolls report for April due for release at 1.30pm (Irish time). This is expected to underline the fact that the progress on labour market conditions remains slow, with consensus forecasts for a modest 186,000 increase in the payroll number and the unemployment rate expected to have remained steady at 8.8%. Meanwhile, the AUD surged after the Reserve Bank of Australia said that it expects that further monetary-policy tightening will be required to keep inflation within target.

The Bank of England also left UK interest rates on hold yesterday, in line with market expectations. Sterling showed little reaction to the announcement and we will have to wait until the minutes of the meeting are released in two weeks time to get an insight into the policy committee’s current thinking. The GBP did, however, bounce higher after the ECB press conference, but remains within reach of the yearly lows seen early yesterday morning following the release of a disappointing UK CIPS services PMI report for April. Combined with disappointing manufacturing and construction surveys, the data have further weakened the case for a UK rate hike. This morning sees the release of the UK PPI report for April.

Economic Data Releases.

Today: UK: PPI Output Prices, April (previous 0.9% MoM); GER: Industrial Production, March (previous 1.6% MoM); CAN: Employment change, April (previous -1.5K); US: Non-farm payrolls, April (expect 198K, previous 216K); Unemployment Rate, April (expect 8.8%, previous 8.8%).

Regards,

Tom Trevorrow
Account Manager
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