By Joe Manimbo of Travelex
The U.S. dollar fell against the euro on Friday as the single currency experienced a tepid reprieve from days of heavy selling pressure on worries about an escalating debt crisis in Europe. Finance leaders from G7nations were set to hold talks Friday on the Greek crisis, which helped to soothe some of the frayed nerves this week that have badly rattled financial markets.
Sterling fell to a one-year low against the dollar after the results from Thursday's close U.K. election failed to dispel the political uncertainty that has dogged the pound in recent months. Though still unofficial, the Conservatives led by David Cameron were expected to win the election, but the Tories looked set to fall short of an absolute majority, making a hung parliament scenario the most likely outcome. Consequently, the prospect of a drawn out resolution has hit the pound.
The Canadian dollar backed off a 12-week low against the dollar after local jobs data Friday showed a gain of more than 100,000 positions in April, a record amount. The upside surprise helped to unexpectedly coax the nation's jobless rate down a tick to 8.1% last month. Market participants had only expected a gain of 25,000 Canadian jobs in April.
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The euro gained some ground against the dollar overnight, enabling it to rebound from a 14-month low on Thursday. Investors took some comfort from the G7 involvement which helped the single currency rebound modestly. The single currency also recovered after falling overnight to a December 2001 low against the Japanese yen, which likely helped the single currency against the greenback. Still, the common currency's bounce could prove to be short-lived given the ongoing concerns about sovereign debt in the eurozone.
The British pound fell to a one-year low against the dollar as all signs from the U.K.'s general election on Thursday pointed to the first hung parliament since 1974. The opposition Conservatives won the most seats in parliament, securing 291. However, the Conservatives, headed by David Cameron, fell short of securing the 326 seats needed for a majority in the 650 seat U.K. parliament.
It is now unclear how the political process will work itself out, but so far the prospect of a hung parliament which would make it tough for the next U.K. government to take needed action to cut Britain's record high budget deficit, is keeping downward pressure on the pound. Gordon Brown's incumbent Labur Party secured 251 seats, while Nick Clegg's Liberal Democrats took only 51 seats.
The Canadian dollar firmed off a 12-week low against the dollar, finding key support from a record rise in jobs in April. Data Friday showed the Canadian economy added 108,700 jobs in April, more than four times the 25,000 forecast. The forecast-crushing number helped to unexpectedly reduce the jobless rate to 8.1% in April from 8.2%. The encouraging news on Canada's labor market increased expectations that the Bank of Canada will boost interest rates in the months ahead. Canada's central bank next meets to consider monetary policy on June 1.
U.S. nonfarm payrolls came in at 290,000 in April, well above the 200,000 consensus forecast. The April job gains were the largest since March 2006. U.S. payrolls in March were revised upward to show an increase of 230,000 workers from 162,000. As encouraging as the headline figure was, a separate survey showed the U.S. jobless rate surprisingly rose to 9.9% from the 9.7% forecast, the same level in March. The hiring of temporary consensus workers was expected to account for the bulk of the April job gains but that only added 66,000 positions.
Overall, Friday's U.S. employment report points to an improving U.S. labor market which is supporting the dollar.