The US dollar was pressured lower against the euro on the back of worse-than-expected jobs data. Data released today showed a rise in the number of Americans making first-time claims for jobless benefits (405K were expected vs. 454,000 actual), suggesting continued strains in the labor market.
Higher profits reported from the manufacturing sector show signs of a continuing recovery in the US economy, though weak jobs data is keeping dollar strength limited.
Yesterday's Federal Reserve statement gave no indication that the U.S. central bank may back away from its loose monetary policy, contrasting with recent hawkish ECB rhetoric and keeping the dollar firmly entrenched at 2-month lows against the majors.
Expectations that the European Central Bank would lift interest rates before the U.S. Federal Reserve have underpinned the single currency. The euro hit a two-month high against the dollar and yen after a European Central Bank policymaker, Lorenzo Bini Smaghi expressed concern about inflationary pressures, further highlighting a policy divergence with the United States.
Annual inflation picked up slightly in Germany in January, in an early sign consumer prices in the wider Eurozone may be rising fast enough to spark concerns for the European Central Bank. The index of consumer prices increased at an annual pace of 2.0% in January, up from December but slightly lower than the 2.2% expected by economists.
The British pound soared against the dollar as it continued to draw support from expectations the Bank of England could raise interest rates by mid-year, while broad dollar weakness also bolstered the UK currency. However, some said weakness in the UK economy, highlighted by news this week of a shock contraction in UK gross domestic product late last year, would cap the pound's gains.
Sterling gave little reaction to data showing a slowdown in British retail sales this month and a fall in UK house prices, which added to the view that the economy remains weak.
The Japanese yen slid against both the dollar and the euro after S&P cut Japan's long-term debt rating to AA minus, saying the country's government lacked a coherent plan to tackle its mounting debt. Although Japan's fiscal troubles are well known, analysts said the ratings cut called into question the yen's status as a safe-haven currency, boosting the appeal of the dollar and the likes of the Swiss franc.
The Canadian dollar slumped to a session low against its U.S. counterpart after data showed an unexpected surge in weekly U.S. jobless claims.
The Australian dollar's early morning gains quickly diminished following news of a new tax to pay for flood damage was seen further lessening the need for higher interest rates in coming months. Prime Minister Julia Gillard said the new income tax would last for a year and raise A$1.8 billion to pay for rebuilding after devastating floods.
The New Zealand dollar fared better after the Reserve Bank of New Zealand said rates there were still likely to rise over the next couple of years, though it would wait for concrete signs of recovery before moving.
Indications of Overnight rates:
10-Year Treasury Note Yield: 3.452%
Dow Jones Industrial Average: 12,003.98 +18.54%
This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.