The US dollar gained this morning on strong economic data out of the world's largest economy. US weekly jobless claims unexpectedly dropped to 383K, beating the forecasted 410K, and better than last week's 415K. Continuing claims also fell, registering 3888K, down from 3925K. Both measures dropped to their lowest levels since the middle of 2008 as improvement in the labor market appears to be gaining momentum. Wholesale inventories also beat forecasts with a reading of 1%, as distributors bolstered inventories in an attempt to keep up with improving sales. The better-than-expected data has pushed that dollar back towards the better end of its recent ranges against all 16 of its major trading counterparts, gaining the most against the NOK, CHF, ZAR and EUR.
A disappointing earnings report from tech giant Cisco, and renewed fervor to the Egyptian protests, has also benefitted the USD this morning as global investors remain on edge. Thousands of Egyptian workers in vital industries like transportation, telecom and energy, walked off their jobs this morning and brought the protests to the steps of the Egyptian parliament and Presidential palace. Rumors have now arisen that President Mubarak is prepared to step down as early as today. Business through the Suez Canal does however remain unimpeded with the Egyptian army providing protection, but with the pressure mounting for a new leader, investors remain nervous about the uncertainty and potential instability in the most populace Arab nation.
The euro tumbled overnight, falling for the first time in four days, as European debt woes again came into focus. Rumors arose that the ECB bought Portuguese government bonds this morning, driving 10-year yields down from the highest since 1999, as fears persist that the Iberian nation may still need a substantial bail out loan, much like the ones extended to Greece and Ireland in 2010. According to ECB data, today's purchase would be the first in nearly three weeks as debt concerns had fallen out of the spotlight in late January with markets focused on the unrest in the Middle East. With no other major data from the Euro Zone, investors have opted for the dollar this morning, rather than the common currency, on the back of strong data out of the US labor market.
Sterling is also lower against the USD this morning, but gained against all 15 of its other most-actively traded peers on speculation of tighter monetary policy before the end of the year. Although, the BoE left interest rates on hold today, as was widely expected, investors have begun pricing in future rate hikes as inflation remains uncomfortably above the Bank's 2% target limit for more than a year. At the last BoE meeting, policymaker, Martin Weale, joined the outspoken hawk, Andrew Sentance, in voting for a rate hike, and many suspect that the faction calling for a tightening of policy may have grown at this month's meeting. Voting results won't be known until later this month, but expectations of higher rates as soon as Q2 will provide significant support for the pound in the near term.
The Japanese yen weakened overnight, falling to its lowest levels against the USD in nearly a month, as strong economic data out of the US encouraged investors. Rumors that Egyptian President Mubarak will be stepping down in the next several days have alleviated some of the pressure from risk aversion that has benefitted the yen since protests began in Egypt nearly three weeks ago.
The NOK was the worst performing major currency as the krone fell by the most in two months. Data showed that Norwegian inflation slowed more than forecast last month, leaving the central bank little room to tighten interest rates. Inflation dropped to 0.7% in January, down from 1% in December, and short of the expected increase of 1.1%. As unrest in the Middle East eases, lower oil prices have also weighed on the NOK with Norway being the world's fifth-largest oil exporter. The SEK was also lower against the USD this morning on data that showed Swedish industrial production unexpectedly contracted by 2.1% in December, missing the expected gain of 0.6%.
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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.