Friday April 1, 2005 - 09:55:20 GMT
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INVESTICA Ltd - www.investica.co.uk
What to expect from the payroll report
The dollar weakened to a low of 1.3015 after the US personal income data, but recovered back towards 1.2960 later in New York and was little changed in early Europe on Friday. The Euro was being restrained by a lack of confidence in the Euro-zone.
The US personal income and spending data was in line with market expectations with increases of 0.3% and 0.5% respectively. The personal consumer expenditure index was also in line with expectations at +0.2% for the month, although there had been a suspicion that the rise would be larger. The measured increase for prices will dampen expectations of a more aggressive Fed policy to some extent and this will also undermine the dollar slightly.
The Chicago PMI index was much stronger than expected at 69.2 for April compared with an expected 62.7 and there were strong gains for the orders and employment components. This will boost confidence in the manufacturing outlook, although the correlation with the national figure is limited.
The US employment report will have a very important impact on the dollar. Payroll growth of above 250,000 would reinforce expectations of a faster pace of interest rate rises while a figure below 180,000 would seriously dampen expectations. The markets appear to have discounted a strong figure and this will leave the dollar vulnerable if the figure is disappointing. Comments from Fed officials will remain very important, particularly if there is a strong employment figure, with the possibility that they will start to hint over a 0.5% rate increase at the next FOMC meeting.
Hourly warnings will also be important as weak growth in earnings would lessen inflation fears and would raise doubts over consumer spending power. In this context, oil prices will also be important as rising energy costs will sap consumer spending power. Sustained prices above US$55p/b could have an important impact in eroding consumer confidence and spending in the second quarter which would, eventually, be likely to weaken the dollar.
The Euro-zone data remained weak with a decline in the PMI manufacturing index to 50.4 in March from 51.9 the previous month, the lowest sine last November. The uninspiring Euro-zone data will hurt Euro sentiment.
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