NEWS / Foreign Exchange

Despite today's positive needs on the jobs front

Despite today??™s positive needs on the jobs front, showing the creation of 166,000 new jobs, nearly double market expectations, the U.S. dollar still remains near record lows against the major European currencies. The robust jobs data for October suggested the U.S. economy was far more resilient than many initially thought. The report also pared expectations that the Federal Reserve will cut interest rates again in December after easing by a quarter percentage point on Wednesday. After the second largest sell off this year in US stock markets yesterday, the USD will remain under pressure.

The Euro remains near record highs despite a sell off in European bourses following yesterdays sharp sell off in US equity markets. USD weakness is omnipresent following the recent Fed news and equity market turmoil. European Central Bank Governing Council member Yves Mersch said in a newspaper interview today, that the strong euro reflects the euro zone's solid growth outlook and balanced trade position. "The euro is strong because the external accounts are in balance and growth prospects are strong," he was quoted as saying, according to the paper's Web site. Despite France??™s continued complaints that the strong euro is hurting their export markets, it is unlikely we will see a shift in the euros direction before year end.

Sterling continued to gain ground against its U.S. counterpart hitting a fresh 26-year high for the third consecutive day, with investors growing increasingly convinced that UK interest rates will not be cut next week. Any residual expectations for a Bank of England rate cut in November were knocked on Wednesday after BoE chief economist Charles Bean said policymakers cannot afford to lower their guard against inflation. The pound should continue to push higher. Sterling gained on Friday against a U.S. dollar weakened by credit market fears and sliding stock markets, shrugging off negative UK wage data as investors expect no interest rate cut from the Bank of England next week. The pound remained near 26-year highs versus the dollar, supported this week by comments from policymakers implying that an interest rate cut from the Bank of England is not imminent. BoE chief economist Charlie Bean said on Wednesday that policymakers cannot afford to lower their guard against inflation. UK industrial and manufacturing figures are due to be released on Monday.

Despite a 2% fall in Japan's Nikkei share average overnight, the Japanese yen was steady against the dollar on Friday, recovering from a brief dip as sliding stock markets kept investors on edge about the credit market troubles. In the past few months the yen has tended to jump when sliding stock markets prompt a reduction in risky positions such as carry trades -- using the low-yielding Japanese currency as a cheap source of funds to buy higher-yielding currencies and assets. With the BOJ widely seen waiting until the first part of 2008 at the earliest, before raising rates again, the yen has suffered as investors have gradually returned to carry trades.

The Canadian dollar surged to its highest level against the U.S. dollar since the late 1800s after strong Canadian employment data boosted the appeal of the local currency. Official figures showed that 63,000 jobs were created in Canada last month, well above forecasts of 11,000, and the unemployment rate fell to 5.8%.

After falling nearly 2% from 23-1/2 year peaks on Wednesday, the Australian dollar recovered some ground against the USD. Robust economic data, including higher third-quarter inflation, in the past few weeks has cemented the case for the Reserve Bank of Australia (RBA) to raise its cash rate by a quarter of a percentage point to 6.75% next Wednesday. This is helping to keep the currency well supported as a rate rise would make Australian assets more attractive to investors chasing higher yields.

The Mexican peso will remain rangebound as Mexico??™s financial markets are closed today in observance of the Day of the Dead holiday.