The dollar rallied versus the euro and firmed up a bit versus the yen on Thursday as traders took in hopeful economic news from the US and a key interest rate decision from the Bank of England.
After a choppy start to the day, traders bought the greenback amid signs that the US economy will be the first to snap out of the global recession. Meanwhile, risk averse traders also established positions in the dollar, hoping the reserve currency will shelter them from any bad news over the long holiday weekend.
The dollar soared versus the euro, jumping to a 9-day high of 1.3126. With the euro area economy stil in a state of flux, it is widely felt that the European Central Bank, which still has room to cut interest rates, will do just that in the coming months.
The ECB said Thursday in its monthly bulletin that the world economy, including the euro area, is undergoing a severe downturn. The April bulletin was identical to the introductory statement given by the ECB President Jean-Claude Trichet on April 2, after announcing the Governing Council decision.
Meanwhile, the Monetary Policy Committee of the Bank of England decided to hold the interest rate at 0.5%. The interest rate now stands at the lowest level since the central bank was established in 1694. The BoE maintained the rate after slashing it for six straight months from 5% in September.
The dollar strengthened a bit versus the sterling in late morning trading, but failed to follow through on the rally as it did against the euro. The dollar traded at 1.4650 by 3 pm ET, a slightly improvement from its overnight levels.
Against the yen, the dollar held its ground, remaining above the century mark for most of the day. Still, the dollar was unable to build upon its multi-month high of 101.42, set earlier this week.
Japan's ruling Liberal Democratic Party (LDP) has approved fresh stimulus spending of JPY 15.4 trillion (USD 154 billion) to resuscitate the world's second-biggest economy from its deepest recession since World War II, reports say.
The figure amounts to 3.1 percent of Japan's gross domestic product and will be the largest ever for a single year, surpassing former Prime Minister Keizo Obuchi's JPY 8.5 trillion stimulus during the Asian financial crisis in 1998.
In economic news from the US, With the value of exports increasing and the value of imports falling, the trade deficit continued to contract in the month of February, falling to its lowest level in over nine years.
The Commerce Department released a report on Thursday showing that the U.S. trade deficit narrowed to $26.0 billion in February from a revised $36.2 billion in January.
Also, after reaching a twenty-six year high in the previous week, initial jobless claims gave back some ground in the week ended April 4th, according to a report released by the Labor Department on Thursday, with claims falling a little more than expected.
The report showed that jobless claims fell to 654,000 from the previous week's revised figure of 674,000.
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