Once again, the best laid plans are not going to plan. The dollar is weaker this morning, which has seen the dollar index move to new lows of the year. This morning at least, we are seeing some factors from the European side pushing it lower, most notably sterling, which has pushed through the late 2009 highs and is now looking at the August high at 1.7063. Firmer data in the form of UK Services PMI has been a factor here, together with continued strong data on the housing side.
On the dollar, there was the usual sinking feeling at the end of last week after the US employment report. Whilst the headline number was better than expected, there was the usual feeling that the message was not as strong as the headline data suggested. Once again, we saw a strong fall in the participation rate, which shows a falling proportion of the working age population either in work or looking for work. This tends to flatter the unemployment rate, as the labour force shrinks. This may seem a technical point, but simply the US is expecting more (in term of tax revnues etc.) from an ever smaller proportion of the working age population.
For FX this week, expect the dollar tone to dominate and keep an eye on both EUR and GBP for further breaks of key levels. The Aussie was naturally volatile after the RBA decision overnight, with rates kept on hold, but the net response was little changed before AUDUSD benefited from the generally weaker dollar.