FX market outlook

FX market outlook

Posted on Friday, February 3 2017 at 9:16 am GMT+0000

Yen slips on BOJ bond buying, dollar steady ahead of jobs data.


Central banks moved the markets in Friday’s Asian session, ahead of the much anticipated US nonfarm payrolls report later in the day.

The yen swung wildly in reaction to the Bank of Japan’s move to control rising Japanese bond yields. In an unscheduled operation, the BOJ bought an unlimited amount of bonds at a fixed rate in an effort to cap yields and maintain a five-month old policy of holding 10-year debt at around zero percent.

The BOJ’s action resulted in a weaker yen by the end of the Asian session, helping the dollar regain ground to rise to 113.22 yen. The greenback had reached as low as 112.50 yen earlier in the session.

Markets were slightly risk-off at the start of the session after regional stock markets dropped after the central bank of China unexpectedly raised short-term interest rates. As markets re-opened from a week-long holiday to celebrate the Lunar New Year, officials in China boosted the target for a key benchmark in another step to tighten monetary policy.

Meanwhile, China released January’s Caixin manufacturing PMI report today. The index slowed from December’s 51.9 to come in at 51.0 last month, and missed forecasts for a 51.8 reading.

The Australian dollar slipped after the data against its US counterpart to as low as $0.7638 from $0.7660 before the release. China is a key trading partner for Australia.

In other currencies, the euro remained weaker against the dollar after a big tumble yesterday and traded to as low as $1.0744. Sterling also held onto losses versus the greenback to touch a session low of $1.2509.

The dollar will be in focus for the rest of the day as investors look ahead to the key US jobs report to obtain insight into the state of the American economy.

After a series of upbeat job reports so far this week, the forecasts are for a solid nonfarm payrolls report today. The US economy is expected to have added 180,000 jobs in January from December’s 156,000 jobs, and the unemployment rate is forecast to remain steady at 4.7 per cent. This will be the first NFP report since Donald Trump came into office.

Aside from the nonfarm payrolls data, the ISM non-manufacturing PMI report is due out of the US. Meanwhile, ahead of the US session, focus will be on services PMI data out of the UK and the Eurozone.