• Dollar nears 100 yen mark
• Commodity-based currencies continue to strengthen
• Sterling soars on cautious optimism that UK will dodge triple-dip recession
USD – Despite a glimmer of hope from the labor markets, the U.S. dollar is broadly weaker today against the majors. The number of Americans filing new claims for unemployment benefits fell more than expected last week, which eased fears of a marked deterioration in labor market conditions after a surprise stumble in job growth in March. Initial claims for state unemployment benefits dropped 42,000 to a seasonally adjusted 346,000. The economy had experienced relatively strong job gains since October. The claims data is being monitored for signs of layoffs related to $85 billion in government budget cuts known as the "sequester." Economists say there is little evidence so far to suggest that the spending cuts which took hold on March 1 are hurting the labor market, noting the weakness in payroll growth last month had not been confined to sectors expected to be hard hit by the budget cuts. The Federal Reserve has tied monetary policy to the labor market. Minutes of its March 19-20 meeting showed the U.S. central bank was moving closer to ending its monthly $85 billion purchases of mortgage and Treasury bonds to keep rates low and spur faster job growth. However, analysts said investors may reassess this idea as the minutes did not reflect a dismal March payrolls report which was released after the meeting.
EUR – The euro continued its upward climb against the USD and experienced 3-year highs against the yen, supported by investors seeking higher yields. If the euro breaks above the pivotal 1.3150 level, we could see a rebound to the 1.33/1.34 levels.
GBP – At a fresh 7-week high against the USD and 3 ½ year peak versus the yen, the sterling continued its ascent, supported by Tuesday’s positive industrial data which signaled that the British economy could avoid slipping into a triple-dip recession. Analysts say sterling could see a gradual lift to $1.55 in the next 3 to 6 months, though moves will be subdued until next week’s BoE minutes release. The benefits for sterling could be short-lived however, with market players likely to remain wary of patchy British economic data and the possibility of further monetary easing from the Bank of England.
JPY – The dollar fell from a four-year high against the yen but still looked bound to strengthen above the 100 level in the near term as traders bet the Bank of Japan's aggressive monetary easing will trigger further yen weakness. A rise above 100 yen would open the door for a test of the April 2009 peak of 101.45 yen. Japan's aggressive monetary easing contrasts with expectations the Federal Reserve may slow its bond-buying later this year. These expectations were given a boost as Fed minutes showed a few policymakers looking to taper asset purchases by mid-year.
Commodity Currencies – The Australian dollar climbed to a 5 ½ year-high against the beleaguered yen and 3-month highs against the USD, while the New Zealand dollar hit its strongest level since early 2008. The yen has suffered in the wake of aggressive monetary easing measures by the Bank of Japan which have pushed Japanese and other investors into higher yielding assets, like the Australian and New Zealand currencies. The Canadian dollar strengthened against the U.S. dollar to its strongest level in nearly two months, benefiting from signs of a growing recovery in China and Japan's aggressive monetary easing.
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