Interest Rate Differentials - US Labor Department said payrolls increased 192,000 in February, fewer than analysts expected and a bounce back from a revised but still weather-hindered 58,000 gain in January. The headline unemployment rate for February fell from 9.0% to 8.9%, which probably means more job seekers gave up looking for work. So the numbers are slightly positive but are they good enough to push US yields higher? This market is being driven by interest rate differentials and if the job data is not enough to push US yield higher than it won't help the USD. In overnight trading, the Euro continued its push higher as the market is convinced that the European Central Bank will raise rates in April, with an outside chance of a total of 75 basis points worth of hikes this year, after ECB President Jean-Claude Trichet stunned investors on Thursday by saying a rate rise in April was a possibility. Even if the ECB decides to skip April and raise in May, the bottom line is that they will rase rate by 50 to 75 basis points before the US Fed delivers its first rate hike. The spread between two-year German government bonds and its US counterparts is now at its widest since January 2009. Elsewhere, safe haven flow continue to wane causing the CHF and Yen to move lower as political turmoil in the Arab world ease. In Canada, the CAD was flat in overnight trading and then moved slightly higher after the US jobs data because what's good for the US is good for the Canadian economy.
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