The dollar has retained the firmer tone gained in the wake of the jobs report of Friday, which showed further strong headline growth, together with better earnings data and a steady participation rate. This has renewed speculation that the Fed may look to adjust its forward guidance language as early as their meeting this month. The difficulty is that inflation expectations remain low, which is not surprising given the current level of the oil price.
The yen was once again one of the main losers on the stronger dollar story, which continued in the early Asia session on the back of the latest downward revision to GDP data in Japan. The third quarter was revised down to a 0.5% decline, vs. the previous 0.4% fall USDJPY has seen some covering of yen shorts, back towards the 121.00 level after the 121.85 high seen overnight.
Meanwhile, stock markets have continued to move higher, China having its longest run of positive days in history. The latest trade data in China was better than expected on the headline balance, although mostly on a decline in imports, which has put the Aussie dollar under renewed pressure below the 0.83 level. We have labour market data later in the week in Australia which will be a key focus. Also of interest will be the extent of the take-up ECB TLTRO loans on Thursday, which will be a key component in the ECB’s desire to see its balance sheet expanded by around EUR 1trn dollars.
The focus will also be on emerging markets, which continue to be under pressure from both the low oil price, with the BIS (international central banking organisation) also highlighting once again the risk from EM dollar denominated debt, which has now become more expensive to service (especially for the likes of Russia).