The US dollar rallied against a basket of currencies after reports showed US jobless claims easing and factory orders came in better than expected. Data from the Labor Department showed first time claims for unemployment benefits decreased 31,000 to 639,000 from an upwardly revised 670,000 for the week ended February 28th. In data released from the Commerce Department, factory orders fell 1.9% in January, which was better than the forecasted 3.5% drop by analysts.
The dollar rally may soon be short-lived after China Premier Wen Jiabao commented China will significantly increase investments by doubling their public spending in 2009 in an attempt to tackle the impact of the global economic slowdown. This determined approach will help whet investor appetite, which in turn may dampen the “safe-haven” status of the dollar.
The euro weakened against the dollar after the European Central Bank cut borrowing costs by 50 basis points to a record low 1.5%. ECB President Jean-Claude Trichet indicated inflation had cooled and Euro Zone growth was likely to remain weak in 2009. The ECB reduced its 2009 growth projections to between -2.2 and -3.2%, from an earlier estimate of zero to -1%.
On the data front, the Euro Zone’s Gross Domestic Product contracted 1.5% in the fourth quarter, which was in line with analyst forecasts.
The British pound weakened against the dollar after the Bank of England cut rates by 50 basis points to a record low 0.5%. To complement the rate cut, the BoE announced a quantitative easing program which would buy assets to boost the economy’s supply of money.
The Japanese yen weakened against the dollar as fresh worries over a deteriorating economy and political uncertainty in Japan was brought back to the forefront of many investors. Government data showed Japanese firms’ capital spending tumbled 17.3 % in the fourth quarter, signaling potential downward revisions of Gross Domestic Product.
The Canadian dollar weakened against the US dollar as oil prices dropped, reducing investor risk appetite.
The Australian and New Zealand dollar weakened against the US dollar as oil prices fell. As commodity prices drop, the Aussie and kiwi tend to weaken against a basket of currencies, as both are heavily commodity based.
The Mexican peso remains little changed against the dollar. Mexico will break its daily foreign-exchange interventions into two parts to stem the peso’s slide. The country’s currency commission has decided to auction $100 million every day at market rates to help dampen some of the volatility.
10-Year Treasury Note Yield: 2.886%
Dow Jones Industrial Average: 6,746.09 - 130.47