FX Majors Weekly Wrap-up

The dollar found it difficult to break out of narrow ranges for most of the week, but strengthened sharply on Friday after the US employment report.The September US ISM surveys suggested a slowdown in growth with the manufacturing index falling to 52.9 from 53.7, the lowest reading since May 2005, while the services-sector index fell to 52.9 from 57.0 the previous month. The prices components dipped sharply in both surveys while the employment indicators were mixed with a drop in the manufacturing index and a rise in the services index.Fed officials, including Chairman Bernanke, offered no clear evidence on US interest rate policy with Bernanke voicing concerns over the housing sector, but also expressing confidence in the remainder of the economy. Fed officials continued to warn over inflationary pressure.The US employment increase for September was lower than expected at 51,000, but the August figure was revised up by around 60,000 and unemployment fell to 4.6% while earning growth was held to 0.2%.The ECB increased interest rates by 0.25% to 3.25% at the October council meeting, again citing underlying inflation concerns. The bank gave no clear indications over future policy, although ECB Chairman Trichet suggested that a further increase in December was the most likely outcome.The Euro-zone data was generally close to expectations with a slightly softer tone early in the week. The PMI index for the manufacturing sector was unchanged at 56.6 while the services-sector PMI fell to 56.7 from 57.4 and unemployment edged higher for August. German factory orders strengthened sharply in August, however, to produce a 5.0% increase for the last two months which boosted confidence in the German industrial sector.The unwinding of long positions pushed the Euro down to 1.26 against the dollar following the US employment data on Friday.The Bank of England left interest rates unchanged at 4.75% following the latest policy meeting on Thursday. The UK economic data was generally firm with the manufacturing CIPS index rising to 54.4 from 53.0 the previous month while the services-sector index rose to 57.0 from 56.7. Manufacturing production also strengthened for the seventh consecutive month with a 0.4% increase for August. Sterling hit selling pressure above 1.8880 against the US dollar, but strengthened to 0.6715 against the Euro on Friday in volatile trading.The yen remained under pressure on yield grounds with further tests of support beyond the 118.0 level against the US dollar and it weakened to 118.60 after the Friday US payroll report. The yen was unsettled by North Korean warnings that it might conduct a nuclear test, but the currency also gained intermittent support from speculation over intervention to curb yen losses against the Euro.Energy and commodity prices were an important focus over the week with prices falling sharply in mid week as oil prices dropped to lows around US$58 per barrel. The drop in oil prices weakened the Canadian dollar to 1.13 against the US currency before a correction and the Australian dollar also weakened to lows near 0.7420 against the US currency. The Reserve Bank of Australia left interest rates unchanged at 6.0% following the latest policy meeting with the currency gaining some support from a drop in the trade deficit.