Euro, Pound Plunge Despite Solid Data

The dollar made a comeback in early European trading today as the currency surged more than 130 points against the pound to drag GBP/USD to a low of 1.9616. Meanwhile, the greenback jumped about 80 points against the euro and yen, bringing EUR/USD to bottom out at 1.3217 and USD/JPY to gain to two month highs of 119.45. The plunge of the EUR/USD was particularly surprising given the exceptionally strong figures out of Europe’s largest economy this morning. The unemployment level in Germany plummeted the most in 15 years in December at a rate of 108K, bringing the unemployment rate to a four-year low of 9.8%. However, the reason was not entirely encouraging, as the labor market in Germany has tightened significantly over the past year as skilled workers leave the country en masse for higher wages, lower taxes, and more flexible working conditions. Nevertheless, the European Central Bank will see the drop in joblessness as a positive sign of Euro-zone economic growth, underpinning the case for a late Q1 hike to 3.75%.

Traders were likely more concerned with the data on tap out of the US today. First up at 13:15GMT is the ADP employment change, a well-known precursor to Friday’s NFP. The figure is anticipated to ease back in December, which also happens to be in line with NFP estimates of a dip to 115K from 132K. Meanwhile, the market moving ISM manufacturing report at 15:00GMT is estimated to edge above the 50 level after falling to 49.5 last month, the lowest level since April 2003. However, should ISM continue to signal contraction in the manufacturing sector, the dollar may not be able to hold onto this morning’s gains. Finally, the minutes of the December FOMC meeting will wrap up the day at 19:00GMT. While the minutes aren’t likely to show any major surprises, the Fed may have reduced the focus on inflation risks, which would be perceived in the markets as dovish.