The Euro was unable to push back above the 1.32 level against the dollar on Thursday and was generally on the defensive. The Euro was again undermined in part by Russian rouble weakness while defensive dollar demand also increased again.

The US new home sales data was much weaker than expected with a decline to an annual rate of 331,000 in December from a downwardly-revised 388,000 the previous month. This was the sharpest monthly decline for over 60 years while the annual rate was at the lowest level since the series began in 1963. Inventories also rose sharply which will tend to undermine near-term housing starts.

The other US data offered no relief with jobless claims rising to 588,000 in the latest week from 585,000 previously while continuing claims were at a record high. Durable goods orders fell by 2.6% for December with an underlying 3.6% decline. Following the spark of optimism following the existing home sales data, there were renewed fears over the depth and duration of the downturn.

The House of Representatives approved a US$819bn fiscal stimulus package and attention will now turn to the Senate. The weak housing data will increase pressure for further action to support the economy.

German unemployment rose by 56,000 in January after a revised 33,000 increase in December which reinforced the fact that the German economy has deteriorated. Euro-zone business confidence was slightly weaker for December, although it was stronger than expected.

Risk appetite faltered following the US data which pushed the Euro weaker and it was also unsettled by comments from Soros over the risks of the Euro collapsing if there was no concerted action on bad debts. The Euro dipped to lows near 1.2930 in New York and choppy trading is liable to remain a feature.


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The dollar has been unable to push above resistance around the 90.70 region against the yen over the past 24 hours. Bank of Japan member Nishimura stated on Thursday that the bank should look at influencing long-term interest rates given that there is very little scope to adjust short-term rates and these comments will tend to weaken the yen slightly on speculation over more aggressive quantitative action.

Risk appetite was still the dominant feature and the yen regained ground as Wall Street came under renewed pressure, but the dollar was able to hold relatively close to the 90 level as underlying yen demand was weaker.


Sterling maintained a firmer tone during Thursday a with a peak just above 1.44 against the dollar while the UK currency also pushed to a 10-day high against the Euro near 0.91.
The Nationwide reported that house prices fell a further 1.3% in January to give a 16.6% annual decline and this was broadly in line with market expectations.

The Bank of England announced that it would buy corporate bonds and commercial paper as part of the GBP50bn support programme for the financial sector. Fears over an expansion of the balance sheet will be offset by hopes of an improvement in credit conditions.

MPC member Blanchflower continued to warn over the economy and called for interest rates to be cut again quickly. He also stated that Sterling was undervalued at current levels which offset the negative impact of economic comments.

Swiss franc

The franc found support on dips towards the 1.5180 level against the Euro on Thursday and strengthened significantly in US trading. The dollar fluctuated around the 1.15 level.

National Bank chairman Roth stated that interest rates would remain at a low level for a relatively long period of time. He also stated that the franc appreciation was painful and that the bank was watching the situation closely. Nevertheless, he also remarked that there was no evidence yet of franc overshooting.

Although there will be further speculation over intervention if the franc strengthens sharply against the Euro, the remarks today will dampen expectations of near-term action and this pushed the currency stronger.


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Australian dollar

The Australian dollar was again blocked close to the 0.67 level against the US currency. Underlying confidence remains fragile and the aggressive interest rate cut from the New Zealand central bank maintained speculation that there would be a sizeable Australian rate cut in February which would undermine yield support.

The US currency rallied in US trading on Thursday while the weak economic data reinforced fears over the global economy. In this environment, the Australian dollar weakened back towards the 0.6550 level as underlying confidence remained very fragile.