Dollar Rallies on ISM as All Signs Point to Stronger Payrolls

Stronger U.S. economic data helped to push the dollar higher against all of the major currencies. The rally in USD/JPY confirms that forex traders are buying dollars on the hope that the U.S. economy returned to positive job growth last month. Based upon the latest reports, there are many reasons to believe that the labor market improved - the question is by how much. After steep losses in December, the fall in jobless claims and the smaller decline in private sector payrolls along with the rise in the employment component of non-manufacturing ISM all point to fewer job losses. However the fact that the private sector is still shedding jobs and the employment component of ISM is still in contractionary territory suggests that it may be risky to overly optimistic. Following the report, Anthony Nieves, the chair of ISM's non-manufacturing business survey committee, said point blank that the lack of jobs is stifling the service sector.

ADP fell by -22k, the fewest amount since Jan 2008 while the employers announced fewer layoffs last month according to the Challenger report. Service sector ISM increased from 50.1 to 50.5, a weaker rise than the market had anticipated. Service sector performance across the globe has failed to match the improvements in the manufacturing sector which is worrisome since services is a much larger contributor to many of these economies. Although service sector activity in the U.S. expanded at a marginally faster rate, activity in the U.K. and Australia slowed. Nonetheless traders are snapping up dollars as the data suggests that the U.S. economy may be growing at a faster pace than some of the other nations.

Meanwhile the European Commission endorsed Greece's stabilization program but subjected them to monthly reports on implementation and their progress on establishing properly maintained and audited statistics. This cautious endorsement has failed to alleviate concerns of global investors as the price action in the EUR/USD  signals that no one wants to own euros.

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