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US Dollar is Weighed Down by Improved Risk Sentiment

February 8, 2011 - Written by John Cameron

Initial impressions of last Friday’s Non-Farm Payroll figure for January were that it showed a concerning underlying weakness in the US labour market. At face value, the headline figure of 36,000 new jobs being created in the month versus analysts’ expectations of 146,000 was highly disappointing. The US Dollar gained ground across the board immediately after the release as risk sentiment in the markets ebbed. However, the Greenback has since given back most of these gains as market-makers look beyond the headline figure and concentrate on the fact that although not as many new jobs were created as anticipated, overall unemployment saw a significant fall in January from 9.4% to 9.0%.

Federal Reserve Chairman, Ben Bernanke, is due to appear before the US House Budget Committee on Wednesday. Up until this time, Federal Reserve commentators have failed to express any public concern over inflationary pressures in the US. This has caused the US Dollar to remain relatively weak. Any change to this soft stance would see renewed US Dollar support.

Last night’s US Consumer Credit figure for January came out significantly better than analysts’ expectations at $6.099Bn. Commentators had expected an expansion of credit of only $2.4Bn. This figure shows that US Consumers continue to take advantage of ultra-low interest rates suggesting that the world’s largest economy has every chance of spending its way out of recession.

However, as with any positive economic data released in the States, this positive Consumer Credit Figure is likely to improve risk sentiment in world markets and cause the Dollar to lose ground in FX markets.\r\n \r\nIndeed, recent economic data releases across the globe have been largely positive, signalling that the current bout of weakness for the Dollar may last for some time. There are few US releases in the week ahead, so expect technical trading and risk sentiment to dominate.
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