• US jobless claims drop to five-year low; housing starts climb to highest in 4 ½ years

  • Euro strengthens on decline in Spain’s borrowing costs

  • Yen plummets in anticipation of aggressive policy BoJ easing

USD – The US dollar extended gains versus the Japanese yen and pared losses versus the euro after data gauging the state of the U.S. housing and labor market. The number of Americans filing new claims for unemployment benefits tumbled to a five-year low last week, a hopeful sign for the lethargic labor market. According to the Labor Department, initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008. It was the largest weekly drop since February 2010.  Meanwhile, U.S. housing starts rose 12.1 percent in December, its fastest pace in over four years, supporting the view that housing is poised to provide a substantial boost to the U.S. economy.

EUR – The euro approached a 11-month high against the US dollar as Spain’s borrowing costs fell at a 4.5 billion-euro ($6 billion) sale of bonds, underlining increased confidence in European debt markets.

The single currency strengthened against all 16 of its major peers amid signs investors are returning to markets they deserted in 2012, with foreign investors buying more than 60 percent of the debt Italy sold two days ago.  The market appears more reassured there will not be an imminent fiscal deterioration in Europe as sovereign spreads narrow and the market stress indicators continue to improve.

GBP – Sterling fell against the US dollar for a fifth day and hit a 9-1/2 month low against the euro as concerns about UK economic weakness contrasted with more upbeat sentiment towards the euro zone. “Whether growth in Q4 turns out to have been slightly positive, or slightly negative, the picture remains one of underlying weakness and a risk of the UK slipping back into recession. Weak data, ratings concerns and poor balance of payments will continue to weigh on it in the coming months.

JPY – The Japanese yen tumbled against the US dollar as investors turned on the currency in anticipation of aggressive policy easing by the Bank of Japan next week. The yen weakened against the US dollar after appreciating for two straight sessions, returning to a trajectory firmly in place since the fourth quarter of last year on expectations that Japan's new government will be more forceful in its actions to bolster its stressed economy. The yen continued its fall after Japan's Economics Minister Akira Amari was quoted as saying that his remarks on Tuesday about the negative impact of excessive yen weakness had been misinterpreted.

Commodity Currencies - The Australian dollar slipped against the US dollar as a softer-than-expected jobs report kept alive the risk of a rate cut in February, while the New Zealand dollar was sustained by higher dairy prices.  Australian employment unexpectedly dipped 5,500 vs. forecasts of a flat figure, while the jobless rate pushed up to 5.4 percent. The figure added to concerns the domestic economy is slowing. The kiwi was underpinned by latest the dairy auction, with prices up 1.1 percent, led by solid gains in whole milk powder and building on a 2 percent gain two weeks ago. The Canadian dollar rose to a session high against the US dollar after encouraging U.S. economic data pointed to a recovery in the housing and employment markets of Canada's largest export market. The US economic data reports trumped the impact of domestic data that showed foreign investment in Canadian securities more than halved to a six-month low in November, which helped to temper the gains in the currency. For now, a risk-on appetite has been a supportive for the Canadian dollar.

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