Figures Much Better Than Expected
The US dollar rose on Friday after better than expected non farm payroll figures showed that the US lost 11,000 jobs in November far less than the 130,000 that had been predicted by experts. The US jobless rate fell from a 26 year high of 10.2% to 10%. The surprisingly positive report prompted speculation that the US Federal Reserve my have to raise rates from present levels of near zero. The dollar is on track to hit a three week high of 90 yen and the euro fell below $1.50. Fabian Eliasson of Mizuho Corporate bank stated, “A jobs recovery is the last piece of the puzzle before we can say we’re in full recovery, so it raises the question that maybe rates will go up sooner rather than later. That’s pushed the dollar higher.”
Jobs Data ‘Too Good to be True’
The US has suffered four straight quarters of economic decline and has lost more than 7 million jobs since 2007. Eliasson said the jobs data is “almost seems to good to be true.” Eliasson stated that initially he thought the figures were a misprint. The dollar vs. yen rate was up 1.6% to 89.60 yen and the euro fell 0.9% and traded at $1.4913. The yen has been pressured by an announcement by the Bank of Japan which said that the central bank will initiate liquidity boosting programs to fight deflation. Low US rates have prompted investors to use dollars for carry trades and the Federal Reserve has said that rates are likely to remain low well into 2010. Assessing the situation Mizuho’s Eliasson stated, “But if (signs of a job recovery) continue, you may start to see the dollar rally on strong data rather than the opposite.” Many analysts believe the yen will replace the dollar for funding carry trades.
China Will Keep Dollar As Foreign Reserve
The dollar was also boosted by statements by Chinese officials who said that the US dollar will remain the anchor of China’s foreign exchange reserves. Earlier China had expressed concerns about mounting US deficits and had discussed replacing the dollar as a reserve currency. Chins has expressed concerns about the weak US dollar.
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