US economy shows signs of recovery with positive employment data

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The markets were looking for signs of a meaningful recovery in the US on Friday and weren't disappointed with the latest release of the non-farm payroll report and unemployment figure. Non-farm payrolls rose by 216,000 last month against an expected gain of 191,000, pushing the unemployment rate down for the second consecutive month to 8.8% from 8.9%. The positive reading from the US Institute for Supply Management of 61.2 on Friday as well supported those at the US Federal Reserve who advocate a withdrawal of further quantitative easing measures. Whilst nothing has been priced in, the era of unprecedented low monetary policy looks to be coming to an end.

Risk appetite amongst investors increased following the encouraging US data as the Australian Dollar and New Zealand Dollar strengthened whilst the Japanese Yen and Swiss Franc fell. The Euro rose against the US Dollar by 0.5% whilst Sterling remained largely unaffected by events, closing the week marginally lower against the Euro from where it opened on Friday morning.

The week begins with March construction and services PMI figures in the UK on Monday and Tuesday respectively, but is dominated by the European Central Bank and Bank of England monetary policy meetings.

If, like me, you think that the combination of recent ongoing turmoil in the Middle-East, a catastrophic tsunami, and a third member of the Eurozone on the brink of requiring a bailout might urge the ECB to delay raising interest rates on Thursday. The markets reaction and the ongoing strength of the Euro suggests otherwise. Speculation that Eurozone interest rates will be raised was bolstered last week, by a further increase in consumer prices to 2.6%, well above the ECB's target of 'below but close' to 2%.

Compare this with the 4.4% rate of inflation, more than double the BoE 2% target, in the UK and the predicament faced by Mervyn King and his committee of nine members. Events at the Bank of England on Thursday will be closely watched following last month's 6-3 vote split.