Bernanke’s comments revive expectations for QE3
The start of the week was characterized by very light trading due to the holidays and risk sentiment was generally soft. At the end of last week, with ultra low volumes due to the “Good Friday” holiday, the jobs report from the United States provided the only ounce of excitement in an otherwise quiet day.
Non-farm payrolls rise less than expected
Employers in the US added fewer jobs in March than forecasted, which underscored recent concerns by Federal Reserve Chairman Bernanke who had said job growth could not be sustained without a pickup in economic growth. Minutes from the Fed’s March FOMC meeting had alleviated some expectations that the Fed will ultimately resort to further quantitative easing. The minutes released on April 3rd, although suggesting the likelihood that the Fed will embark on QE3 diminished, were still not enough to ensure more stimulus could be excluded as Bernanke communicated a continued accommodative monetary policy. The 120’000 increase in non-farm payrolls versus a consensus for 205’000, the slowest gain in five months, highlighted the fact that more easing by the Fed couldn’t be dismissed, just yet.
Despite the slower headline jobs number, not all employment numbers showed a pessimistic tone. The unemployment rate fell to 8.2 percent, its lowest since January 2009 while average monthly payroll gains accelerated to 212’000 in Q1 from 152’000 in 2011. EUR/USD rose more than 60 pips on the release of jobs data from a session low of 1.3051 to a session high of 1.3112. The dollar pared its losses early on Monday, as the pair fell to a three- week low of 1.3033.
A speech by Fed Chairman Bernanke on Monday, who said the US economy is still “far from having fully recovered”, again put pressure on the US dollar as he revived prospects for QE3 and EUR/USD rose to 1.3144 by Tuesday morning. Bernanke’s comments weighed further on risk appetite, as concerns deepened that the global economic recovery was faltering, and boosted demand for safer assets. Global share markets fell and safe-haven currencies such as the Japanese yen and Swiss franc were supported.
BOJ keep monetary policy on hold
USD/JPY was down more than 0.60 percent by the time of writing on Tuesday, as it extended its correction to 80.92 hitting a fresh one-month low. EUR/JPY also fell to a one-month low by 105.97, breaching its 200-day moving average at 106.12. The Japanese currency was boosted across the board on Tuesday, up 0.75 percent against its major rivals; after the Bank of Japan refrained from easing monetary policy further in their two-day policy meeting which came to a conclusion early on Tuesday morning. The vote to keep rates unchanged at 0 – 0.10 percent was well expected but the unanimous vote to keep their current level of JGB purchases at 30 trillion yen surprised some investors who were expecting a different outcome from this week’s meeting.
Spanish concerns reignite contagion fears
Risk appetite was also hurt by renewed concerns at the start of the week that Europe hasn’t yet stemmed its debt crisis. Spanish bonds came under further pressure and 10-year yields surged towards new 2012 highs. Prime Minister Rajoy said the country was in “extreme difficulty” and a debt auction last week attracted weak demand.
Switzerland sells bills at negative borrowing costs
Swiss six-month bills offered a rate below zero at a sale this morning and the franc traded within 13 points off its 1.20 EUR/CHF cap, as concerns over contagion in the European sovereign crisis boosted demand for the franc.
Switzerland sold the six-month bills at an average yield of -0.251 percent on Tuesday. Swiss National Bank interim chairman Thomas Jordan reaffirmed the bank will enforce the floor of 1.20 after it was temporarily breached, which raised doubts over the SNB’s resolve to defend it. EUR/CHF dipped below the limit for the first time on April 5th to 1.1994, since it was introduced seven months ago. But Jordan reassured reporters in a press conference on Tuesday that the central bank was “enforcing the minimum exchange rate with all the means at its disposal”.
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