USD
The dollar continued to grind higher during the Asia session, as guarded optimism builds over the upcoming payrolls report, and the strength of the US recovery in general. EURUSD traded 1.2968-1.3029, USDJPY 83.14-83.56. Asian equities were fractionally higher, after the S&P 500 finished down -0.2%. Press reports mentioned that US Treasury Secretary Geithner has written to Congress to urge that the US debt limit be raised, preferably before the end of March. Initial jobless claims rose in line with expectations in the week ended Jan 1 to 409k. Our analysts upped their estimate for nonfarm payrolls following the better data earlier this week. They forecast private payrolls rose +190k (cons: +170k) and total payrolls increased +160k (cons: +150k). The dollar has recently started to behave increasingly like a growth currency but today's payrolls release, and Fed Chairman Bernanke's testimony, will be a good litmus test for whether this trend can be sustained. Although we look for modest dollar strength in 2011, ongoing uncertainty on the recovery, coupled with the possibility of policy errors, is expected to keep FX volatility elevated.
EUR
The newswires carried comments from China's PBoC. The Bank said the euro is an important part of its FX reserves investment, adding that Eurozone sovereign debt offers reasonable returns.
According to newswires, the EU Commission has put forward a blueprint for imposing haircuts on senior bondholders of European banks. The same reports suggest the measures could become law by 2013.
A Spanish newspaper, citing an unnamed government source, said that China has committed to purchase €6 bn of Spanish sovereign debt. This represents a relatively small portion of the €90 bn in Spanish supply our European rates strategists expect for 2011. The newspaper added that China's Vice Premier Li has committed to buy as much Spanish debt as the combined holdings of China's Greek and Portuguese bonds.
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