The British pound tumbled versus the greenback on Thursday from a multi-month high of 1.7044 formed in the previous day after the Bank of England announced that it will expand the size of its asset purchase program to an unexpectedly large 175 billion pounds from 125 billion pounds. Investors treated this as a piece of sterling-negative news as printing money is a way of depreciating of the currency. In addition, the BoE stated that ‘the recession appears to have been deeper than previously thought.’ BoE held interest rates at 0.5%. Cable hit as low as 1.6752 in New York afternoon and cross selling in sterling versus euro and yen also weighed on the pair as eur/gbp rallied from 0.8454 to 0.8563 and gbp/jpy dropped from 162.38 to 160.01.
Risk aversion lifted the dollar against a basket of currencies on Thursday ahead of Friday’s U.S. employment report as President Barack Obama said that he still believes the unemployment rate will eventually top 10%. In addition, White House Economic Adviser Christina Romer said that the jobs data due out on Friday will show more payroll losses and a higher unemployment rate. Although U.S. weekly jobless claims dropped sharply to 550,000 last week from 588,000 in the prior week, this report failed to support expectations that the labour market and the economy were stabilising. The unemployment rate was seen climbing to the highest since June 1983 at 9.6% from 9.5% in June while economists forecast 320,000 workers lost their jobs last month. Usd/jpy rallied from 94.78 to 95.82 and usd/chf rose from 1.0604 to 1.0680 before retreating due to profit taking.
Euro declined to as low as 1.4328 against the greenback in New York afternoon despite hawkish comments from ECB President Jean-Claude Trichet. The European Central Bank kept interest rates unchanged at a record low of 1.0% as widely expected. Trichet said in a press conference that he saw the recession bottoming out and inflation turning positive before year-end. He also stated that rates remained appropriate at the current level, adding that a fall in consumer prices in the eurozone’s recession-bound economy was temporary. The ECB was not planning any new credit-easing measures to boost the economy and would give liquidity injections and its covered bond purchase program time to work, he added.
Data to be released on Friday include Switzerland jobless rate, German trade balance, industrial production, U.K. PPI, Canada unemployment rate, Ivey PMI, U.S. unemployment rate and non-farm payrolls.