US dollar dominates markets

The US dollar steams ahead as last Friday’s jobs data highlights the ever-widening gap between the US and the rest of the world.            

US dollar and euro notes
Source: Bloomberg

GBP/USD kicked by jobs data

The pound has dropped to its lowest level versus the US dollar since September 2013 as the greenback continues to gain ground on the back of the US jobs report on Friday. Adding to the pound’s woes, the Bank of England has issued its final quarterly bulletin for this year and the report highlights the risks posed to mortgage holders should UK interest rates rise. The UK central bank estimated the number of mortgage holders that would fall into arrears could increase by one third if interest rates were to rise to 2.5%. The BoE predicts that wage growth will increase and that should cushion any increase in the base rate.

Traders are not expecting any change in the UK interest rate until well into next year, and this will keep the pound under pressure. Sterling has been sliding since the high of £1.7179 reached in July and the downward trend remains intact.

$1.56 is now acting as resistance for the GBP/USD as it previously acted as support. $1.55 is the new target for the bears.

EUR/USD eyeing $1.22

The EUR/USD pair has dropped to a fresh two-year low at the start of a busy week for the eurozone in terms of economic announcements. Ministers are set to meet today and tomorrow and, given the increased division between some member’s states over the possibility of quantitative easing, it could make for choppy trading. As Chris Beauchamp stated on Friday there are whispers of QE in early 2015, but Germany is strongly against it. Mario Draghi recently stated that all member states do not need to support such a stimulus package for the European Central Bank to press ahead with the scheme.

On Thursday we will find out the details of the targeted LTRO. One of the biggest problems in the eurozone is that the flow of credit is not running a smoothly as it could be. A healthy refinancing of eurozone banks could help lending throughout the region.

EUR/USD is on track for its sixth consecutive monthly decline, and traders are already eyeing the $1.22 level. A pullback could see the euro hit $1.23 but I suspect any upward moves will be short lived.

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