Concerns over a slowdown in U.K. manufacturing growth and mortgage market worries helped pressure the British Pound. Sterling investors seem to be pre-occupied lately over the new austerity measures and tax hikes. Many still feel the economy will slump because of these two programs.

 

The GBP USD chart indicates room to the downside with 1.5113 a potential downside target. Short-covering could trigger a quick pop to 1.5600, but this likely will be another selling opportunity.

 

The U.S. Dollar traded flat to lower as most traders remained cautious ahead of Friday’s U.S. Non-Farm Payrolls Report. Earlier this morning the Dollar showed little reaction to the European Central Bank’s decision to hold interest rates steady and a slight drop in U.S. Weekly Initial Claims.

 

Jobless claims remained a concern among investors because they remain at a high level. This is an indication that the U.S. economy is cooling while fueling worries that the recovery may not be sustained if private firms continue to refrain from hiring new workers.

 

The Euro held steady following the ECB’s decision to hold interest rates at 1%. The market did have a positive reaction to the comment from ECB President Trichet who said the recovery “should proceed at a moderate pace”.

 

A choppy stock market led to mixed results in the commodity-linked currencies. The New Zealand Dollar traded better, but the Australian and Canadian Dollars were flat which may be a sign that Wednesday’s strong rallies may have been overdone.

 

The rally in the U.S. equity markets has temporarily stopped the decline in the USD JPY. Earlier in the week the Japanese Yen rose sharply after the government and the Bank of Japan failed to take intervention action and opted to increase its quantitative easing program. Stronger equity markets could revive appetite for risk and the carry trade, leading to a stronger Dollar/Yen.

 

Although the Dollar is down this week, many large traders and institutions have been on the sidelines due to tomorrow’s employment report and Monday’s U.S. Labor Day holiday leading to speculation that this week’s action was due to thin trading conditions.