The dollar and the yen plunged in early Asian trading on Friday as the outcome of the G20 meeting boosted investors' risk appetite, but the currencies trimmed their losses later, as caution returned ahead of U.S. employment figures due later in the day, which is expected to show the US economy continued to lose jobs in March.
Economists estimate that the U.S. economy lost 656,000 jobs in March and look for an unemployment rate of 8.5%.
The job losses in February were 651,000, in line with the 650,000 jobs losses expected by economists. The unemployment rate based on the household survey was 8.1% in February, up from 7.6% in the previous month. Economists had been forecasting an unemployment rate of 7.9%.
The G20 leaders clinched a $1.1 trillion deal yesterday to counter the worldwide economic crisis and the United States said it would change accounting rules to allow banks more flexibility in valuing toxic assets.
Both developments improved investors' appetite for risk and weighed on the Japanese and U.S. currencies, with the yen hitting a new 5- month low against the dollar.
Global leaders met in London yesterday to face the most severe global economic crisis since the Great Depression. The attendees expressed satisfaction with the outcome of the meeting, with leaders agreeing to both do whatever is necessary to stimulate the global economy, as well as enact regulatory reforms to strengthen the financial system.
The summit was President Barack Obama's first major international meeting, and he praised the agreements reached by leaders as a turning point in our pursuit of global economic recovery.
The G20 members, who represent 85 percent of the world's economy, have agreed to enact fiscal stimulus of around $5 trillion.
We are undertaking an unprecedented fiscal expansion, which will save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4 percent, and accelerate the transition to a green economy, United Kingdom Prime Minister Gordon Brown said.
Pointing to the decision to triple funding to the International Monetary Fund to $750 billion, Obama said that the G-20 would support developing countries.
The G20 leaders convinced investors that they were united enough to keep a risk-taking rally alive, lifting Asian stocks a fourth day today.
The perception of global policy coordination added to a growing investor optimism based on sprouts of economic recovery around the world in the last month. For example, a gauge of Chinese manufacturing in March released yesterday reflected expansion for the first time since September 2008.
Japan's Nikkei stock average rose 0.3 percent today, hitting a three-month closing high on increasing optimism about the world economies. The Nikkei 225 Stock Average rose 30.06 points, or 0.3%, to close at 8749.84. Overall, the index rose 1.4% this week.
Oil fell below $52 a barrel in Asian deals today, retreating from the previous session's 9 percent surge, as expectations of a continued weakness in near-term energy demand prompted investors to take profit.
In Asian trading, crude oil ended down $0.73 at $51.91 a barrel in electronic trading. Light sweet crude for May delivery closed up $4.25 at $52.64 a barrel on the New York Mercantile Exchange on Thursday, after hitting an intra-day low of $48.45 and a high of $52.87 on improved demand prospects amid hopes the G-20 summit will help pull the world out of the economic crisis.
The yen depreciated 13% against the dollar after it reached a 13-year high of 87.13 on January 21 and slumped beyond the 100 level in early Asian deals today for the first time in almost 5-months. But the yen reversed direction after hitting a low of 100.19 at 8:30 pm ET Thursday and surged to 99.36 by about 2:30 am ET Friday. If the Japanese currency strengthens further, it may find near term resistance around the 98.4 level.
Against the currencies of Europe and UK, the yen slipped to new multi-month lows of 135.02 and 147.90 at 8:20 pm ET Thursday. Thereafter, the Japanese yen bounced back and it is currently trading at 133.40 against the euro and 145.80 against the pound, compared to yesterday's close of 133.92 and 146.50, respectively. The next upside target level for the yen is seen at 131.9 against the euro and 142.9 against the pound.
The yen fell to a new multi-month low of 88.38 against the Swiss franc before gaining ground at 8:20 pm ET Thursday. Currently, the franc-yen pair is worth 87.40 with 85.9 seen as the next target level.
The Federal Statistical Office said today that Switzerland's consumer prices declined 0.4% in March from the previous year, faster than 0.1% fall expected by economists. In February, consumer prices grew 0.2%. Month-on-month, consumer prices were down 0.3% in March, while economists expected prices to stay stable.
At about 2:30 am ET Friday, the dollar reached 1.34 against the euro and 1.1392 against the franc, up from its multi-day lows of 1.3517 and 1.1310, hit respectively yesterday. If the dollar climbs further, it may likely target 1.334 against the euro and 1.149 against the franc.
The euro jumped yesterday after the European Central Bank eased by less than the market had braced for, cutting rates by 25 basis points to 1.25 percent instead of an expected 50 points.
Although the ECB cuts rate, the current rate is still higher than in the U.S. and the U.K. - highlighting the central bank's wariness about taking more aggressive action.
The head of the European Central Bank hinted that policy-makers for the 16-nation currency could announce further non-standard policy measures in the next rate-setting session in May.
In comments following the bank's decision to cut its benchmark interest rate by a quarter percentage point to 1.25%, ECB President Jean-Claude Trichet also signaled that there is still room to cut the benchmark interest rate for Euro zone and said the world economy is undergoing a severe downturn.
In his introductory statement, Trichet said, Both global and euro area demand are likely to remain very weak over 2009, before gradually recovering in the course of 2010.
The dollar rose against the pound after plunging to a 10-day low of 1.4776 at 8:20 pm ET Thursday. The pound-dollar pair that closed yesterday's deals at 1.4729 is presently quoted at 1.4692. On the upside, 1.46 is seen as the next target level for the US currency.
Looking ahead, the Italian statistical office ISTAT is slated to report producer prices at 5:00 am ET. Producer prices are forecast to fall 3% annually compared to 2% fall in the prior month
In addition to the US jobs data, the ISM is scheduled to release the results of its non-manufacturing survey in the North American session today. The non-manufacturing index is likely to show a reading of 42 for March.
Also, Fed Chairman Ben Bernanke is due to deliver closing keynote address to Richmond Fed Bank's 2009 Credit Markets Symposium in Charlotte, North Caroline at 12 pm ET.
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