Is the Dollar Sell-Off Over? It Depends on Payrolls (page 2 of 2)

Headline prices increased by a paltry 0.3 percent, with the annualized pace of growth slowing to the same pace from 0.8 percent reported last month. It seems that the decline in energy prices has really hit consumer prices and given that, do not expect a rate hike from the Swiss National Bank anytime soon.

British Pound - After six straight days of gains in the British pound - US dollar currency pair, we are finally seeing signs of weakness. The pair is ending the day unchanged despite a very firm construction sector PMI report. The economy is continuing to do very well with the housing market leading the pack. Although the currency pair appears poised for a turn, the combination of hawkish comments from the central bank, continual merger and acquisition flow and strong data should keep any losses limited. Service sector PMI is due for release tomorrow and the risk is for an upside surprise similar to what we saw in the construction sector index this morning.

Japanese Yen - Despite the lack of economic data, the Japanese Yen is continuing to sell-off against the majors as the old battle between the Japanese government and the Bank of Japan heats up once again. Traditionally the government holds the central bank back from any actions that would reduce the stimulus in the economy. Last night however, the tables seem to have turned as the Bank of Japan is the one that is more relaxed about monetary tightening.

Once again, the Ministry of Finance's Watanabe expressed concern about the value of the Yen and how fundamentals do not warrant further weakness. The Bank of Japan's Governor Fukui on the other hand said that there is no need for the central bank to lift interest rates too quickly. This is actually quite important since the Fukui is typically a very aggressive supporter of higher interest rates. His relatively relaxed stance will certainly keep carry trades in play for a while longer.

Commodity Currencies (CAD, AUD, NZD) - The movements in the commodity currencies are much quieter today. The Canadian dollar extended yesterday's sell-off after the government announced plans to tax income trusts. There was no data released today, but like the US, employment is due for release tomorrow. Payrolls growth is expected to slow slightly from 16.2k to 15.0k, which would be yet another piece of evidence that the fall in oil prices has been hurting the economy as a whole. Interestingly enough, Australian data has taken a turn for the worse as both the trade balance and retail sales came in much weaker than expected. This poses a slight risk to the widely anticipated interest rate hike by the Reserve Bank next week, which explains why the Australian dollar is down for the day.