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 The euro broke below $1.0980for the first time since September 2003
as it continued its steady march lower.
The same balance of risks saw the gap between German and U.S. bond
yields stretched to its widest in more than a quarter of a century
as government bond yields across the 19-country euro zone took
another step lower.
Equity investors were playing it safe, however, ahead of the U.S.
jobs data.
Europe's benchmark FTSEurofirst 300 was inching higher again
after Thursday's news that the ECB will start its long-awaited
quantitative easing program at the beginning of next week had seen
it hit a seven-year high.
Analysts polled by Reuters expect U.S. payrolls due later to have
increased 240,000 last month and the jobless rate to have ticked
down to 5.6 percent from 5.7 percent.
Although that would be a slight slowdown in the headline trend, it
would mark the 12th straight month of job increases above 200,000,
the longest such run since 1994.
Philip Marey, a U.S.-focused strategist at Rabobank, said the Fed is
happy with the labor market in terms of interest rate hikes, but
slack prices were a concern.
"It is the (low) inflation picture that will deter them from pulling
the trigger on interest rates early," he said.
Against a basket of major currencies the dollar <.DXY> was at fresh
11-year highs as dealers readied for the payroll numbers, which
could be delayed slightly from their usual 8:30 a.m. ET publication
due to snow in Washington.
The recent run of U.S. economic news has been mixed at best, leading
analysts to steadily downgrade forecasts for growth this quarter. A
strong jobs report could offset that and give the Fed reason to
stick to its tightening timetable at the next policy meeting on
March 17-18.
In contrast, the picture in Europe has been steadily improving.
Data on Friday showed German industrial output rose more than
expected in January, notching up its fifth straight monthly
increase, while it also climbed 0.4 percent year-on-year in Spain.
"The positive result in January and the upward revision of the data
from the previous months underline that the recovery of the German
economy is continuing," its economy ministry said.
EURO TRASHED
Futures prices were pointing to a subdued end to the week for Wall
Street, where the the S&P 500 is on course for second consecutive
week of losses.
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Trading in Asia overnight had also been mostly guarded with one main
exception, Japan's Nikkei, which hit a new 15-year top as the yen
weakened on the dollar.
An upbeat jobs report would typically be positive for Wall Street,
but the risk of an earlier hike may complicate the market's
reaction.
On top of the stark divergence now in bond markets, U.S. bourses are
facing small-scale losses again this week whereas European shares,
bolstered by the ECB's aggressive stimulus, are on course for their
fifth straight week of gains.
The rise in the dollar and U.S. yields is also putting the squeeze
on emerging markets where many of the countries fund themselves, at
least partially, with what is becoming increasingly costly
dollar-denominated debt.
MSCI's benchmark EM stocks index was down almost 3 percent for the
week and the Turkish lira, often a lightning-rod for EM sentiment,
hovered close to a record low as political interference worries
compounded the general headwinds.
"The lira is not only suffering because of Erdogan's continuous
criticism of monetary policy," said Luis Costa, head of CEEMEA debt
and FX at Citi, pointing to Turkey's large stock of dollar debt.
In commodity markets, U.S. crude was quoted 34 cents firmer at
$51.10 and up for the week. Brent crude gained over a dollar
to $61.16 a barrel though it was lower than Monday's $62.50 start
point.
Gold was a touch lower at $1,196 an ounce as it headed for its
fifth week in the red in the last six. [
(Additional reporting by Sujata Rao in London and Wayne Cole in
Sydney; Editing by Catherine Evans)
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