- USD is mixed after central bank rates abroad remained unchanged
- EUR is stronger after ECB President Draghi gave no hints of further easing in rates
- JPY reached its weakest point since August, 2009 against the USD
USD – The US dollar is mixed after central bank rate decisions abroad left global interest rates unchanged. Domestically, the US trade deficit widened in January, reflecting a jump in oil imports and a drop in exports. The deficit rose to $44.4 billion, an increase of 16.5% from December. Exports dropped 1.2% due to declines in sales to Europe, China, Japan, and Brazil. In addition, the number of Americans who filed for unemployment benefits declined to a six-week low, showing further improvement in the labor market. First time jobless claims unexpectedly fell by 7,000 to 340,000 in the week ended March 2. However, the productivity of US workers fell in the fourth quarter by the most in four years, while labor expenses accelerated as companies added workers and boosted hours. The measure of employee output per hour decreased at a 1.9% annual rate after a 3.1% third quarter gain. The improvement in the US labor market has spurred appetite for higher yielding assets.
EUR – The euro rose against the dollar, supported by strong demands at a Spanish debt auction that eased some investor concerns about the euro zone, and after the ECB left its benchmark interest rate unchanged at 0.75%. The common currency had risen to a session high after Spain sold euro 5 billion in bonds, hitting the top end of its targeted amount despite political uncertainty in Italy. The single currency also rallied after ECB President Mario Draghi gave no hints of further easing in rates which had been expected by many analysts. Italians have yet to gather enough support for a party-grouping to form a durable government, raising the prospect of a delay to economic reforms and debt-cutting measures.
GBP – Sterling rebounded from a 2-1/2 year low against the US dollar after the BoE decided not to resume its quantitative easing program. Many investors had bet against the pound in recent weeks on expectations that a grim UK economic outlook would prompt the central bank to pump in more liquidity. However the central bank's Monetary Policy Committee opted not to add to the 375 billion pounds of government bonds bought with newly created money between March 2009 and October 2012. Further, the BoE's bank rate has remained unchanged at a record low of 0.5%.
JPY – The yen has reached its weakest point since August, 2009 against the US dollar after the BoJ kept monetary policy unchanged, and on expectations of aggressive easing in the future. Some strategists have also revised their forecasts to show continued yen weakness after Board member Shirai voted to introduce an open ended asset purchases program, which is currently scheduled to end in 2014.
Commodity Currencies – The Canadian dollar is stronger against the USD, having gained 0.1% since yesterday’s close. Despite leaving rates unchanged, the BoC retained its hawkish bias, however stating that “stimulus will likely remain appropriate for a period of time”. Domestically, Canada's trade deficit in January shrank to just C$237 million (USD $230 million) as exports grew at a faster rate than imports. The deficit represented the best performance since the surplus recorded in March 2012. January exports rose to the greatest month-on-month increase since December 2011 – on the back of higher oil prices and volumes. However, the focus will shift to tomorrow’s US and Canadian employment releases. The AUD strengthened against the USD even as Australia’s trade deficit unexpectedly widened to AUD1.1 billion dollars. The non-eventful central bank releases and improvement in the US labor market has lowered volatility levels and increased the appetite for higher yielding assets.
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