The dollar advanced sharply in the Thursday session, climbing to its highest level since May 2009 against the euro at 1.3728 and surging against the Canadian dollar to 1.0752. The US equity indexes retreated sharply, with the Dow Jones lower by 2.3%, the S&P 500 tumbling by more than 2.6% and the Nasdaq falling by nearly 2.5%. Crude oil plunged by more than 5% to below $73-per barrel while spot gold shed 4.3% to $1,062 per ounce.

Weekly jobless claims missed consensus estimates for an improvement to 455k, instead increasing to 480k from an upwardly revised 472k in the previous week. The larger than expected weekly jobless claims figure bodes poorly for Friday's highly anticipated non-farm payrolls report. The Q4 non-farm productivity missed forecasts, up 6.2% and down from 7.2% in the previous month while unit labor costs fell by 4.4% versus a 1.5% decline from Q3. Meanwhile, factory orders increased by 0.5% in December compared with a downwardly revised 1.0% increase in the previous month.

Markets will look ahead to the highly anticipated labor report due out tomorrow morning at 8:30 AM. Consensus estimates call for the unemployment rate to remain unchanged at 10.0% while non-farm payrolls are forecast to show an increase of 8k jobs versus a loss of 85k jobs in December. Also to be closely focused on will be the revisions to previous months' NFP. If the payrolls figure disappoints sharply to the downside, the dollar is seen extending today's gains across the board.

BoE Stands Pat

The Bank of England left monetary policy unchanged at 0.5% and halted its bond repurchase program at 200 billion pounds, while leaving the option open if economic conditions warrant further quantitative easing. The pound succumbed to broad based dollar strengthening, tumbling to 1.5733. Support starts at 1.57, followed by 1.5660 and 1.5630. Subsequent floors are seen at 1.56, backed by 1.5570 and 1.5540. Gains will target interim resistance at 1.58, followed by 1.5840 and 1.5870. Additional ceilings will emerge at 1.59, backed by 1.5930 and 1.5980.

ECB Leaves Policy Unchanged

The ECB left interest rates steady at 1.0%, in line with market expectations. In the subsequent press conference, Bank President Trichet expressed confidence that Greece would be able to cut its deficit and reiterated that the current interest rate level was appropriate.

EURUSD broke beneath the 1.38-level and just around 1.3750. Support is seen at 1.3730, followed by 1.37 and 1.3660. Additional losses will find support at 1.3640, backed by 1.36 and 1.3550.