The US dollar traded lower vs. most major currencies as an increase in equities and positive economic data increased investor risk-appetite for higher-yielding currencies. Yesterday, the Federal Reserve kept interest rates at a record low range of zero to 0.25%. The Fed also repeated its intention to keep interest rates exceptionally low for an extended period as long as inflation expectations are stable and unemployment fails to decline. Nonfarm productivity increased 9.5% in the third quarter, higher than forecast 6.5%. Initial jobless claims came in less than expected at 512,000 and continuing claims also beat forecasts with 5,749,000 claims.
The euro stayed mostly flat against the dollar after a mix of news. Also, the European Central Bank announced that interest rates would stay at a record low of 1.00%. Along with that ECB President Trichet indicated that the auction of unlimited 12 month loans will not be extended after next month. This helped support the euro against negative economic data showing that Eurozone retail sales fell 0.7% in September, lower than forecast of a 0.2% increase.
Sterling increased against the dollar after the Bank of England expanded its debt-buying program by less than predicted. As other central banks, UK policy makers kept interest rates at record lows of 0.50% and increased asset purchases to 200 billion pounds, 25 billion pounds less than forecast, citing signs of economic recovery taking hold. Also helping the pound today was manufacturing which rose 1.7% in September, beating forecasts of 1%. Industrial Production rose 1.6%, higher than forecast of 1.2%.
Overnight, the Japanese yen held onto its gains against the dollar after yesterday's FOMC decision to keep rates at their record lows, but the dollar was able to recoup some of its losses after better than expected jobless claims. Minutes from the Bank of Japan's October meeting show that policymakers felt it important that rates be kept low despite an end to the emergency funding programs.
The Canadian dollar was slightly firmer against the US dollar after US jobless claims fell and productivity rose at its fastest pace in six years. Statistics Canada reported permits for housing construction in Canada surged to a one-year high in September to 1.6% as expected. Although investor appetite for risk has spurred on positive economic news, many are still holding back as they await both Canada and the US's employment reports due tomorrow.
The Australian dollar gave up some gains hurt by lower gold and stock prices. However, the prospect of widening interest rate advantage helped keep the Aussie aloft. Investors are closely monitoring economic reports and speeches by RBA officials for direction on whether interest rates will be raised again in December.
The New Zealand dollar lost its gains vs. the US dollar after weaker than expected jobs data and central bank comments on the fragility of the economy's recovery. Data showed New Zealand's jobless rate hit a nine-year high to 6.5% in the third quarter, which backed the case for rates to be held low well into the coming year.
The Mexican peso gained for the first time this week as US stock rose, boosting investor demand for riskier assets. The US is the buyer of 80% of Mexican exports.
10-Year Treasury Note Yield: 3.507%
Dow Jones Industrial Average: 9,893.35 +120.46