- The dollar traded mostly higher against its key rivals Thursday after European Central Bank President Jean-Claude Trichet sounded less hawkish than expected. The euro and pound fell following European interest-rate decisions. The ECB left its benchmark interest rate at 4% for the tenth consecutive month, while the Bank of England cut its key rate by a quarter percentage point to 5%. The greenback overcame earlier weakness against the yen and Swiss franc on rising US stocks and Goldman Sachs CEO Lloyd Blankfeins comment that were closer to the end than the beginning of the credit turmoil. The dollar block currencies were little changed.
- The EUR/USD failed to penetrate resistance and dropped from a record high after ECB President Jean-Claude Trichet expressed optimism over the longer term inflation outlook in the EMU. Trichet said the decision to leave rates unchanged reflects the ECBs view that the current rate is appropriate to ensure that inflation is in line with its target of a rate below but close to 2.0% in 18 months time. The pair is still below resistance in the 1.59-area and support from the uptrend.
Financial and Economic News and Comments
US & Canada
- US initial jobless claims fell last week by the largest amount in over two-and-a-half years, while continuing jobless claims rose to the highest level in over three-and-a-half years. The initial jobless claims dropped 53,000 to 357,000 in the week ended April 5, the Labor Department said. The larger-than-expected fall follows a large increase the previous week. The swings in these two weeks reflect seasonal adjustment problems associated with Easter and an auto strike. The four-week moving average of new claims rose 2,500 to 378,250. The continuing claims increased 3,000 to 2.94 million, the highest since 2004. Figures on the fourweek moving average and continuing claims still point towards higher unemployment. We do not see any improvement in the labor market this year.
- The US deficit in international trade of goods and services rose 5.7% to $62.32 billion from Januarys revised $58.96 billion, the Commerce Department said. The January trade gap was originally reported as $58.20 billion. US exports in February climbed 2.0% m/m to $151.36 billion from $148.38 billion, while imports rose at a faster pace, up 3.1% m/m to $213.68 billion from $207.34 billion. Exports jumped 20.8% y/y, while imports increased 16.4% y/y.
- European Central Bank President Jean-Claude Trichet said inflation risks remain elevated but indicated no interest-rate increases as the credit squeeze threatens economic growth more than the ECB forecast. We are experiencing a rather protracted period of temporarily high annual rates of inflation, Trichet said at a press conference in Frankfurt. Financial-market tension may last longer than initially thought and have a broader than currently expected impact on the real economy, he said. We believe that the current monetary policy stance will contribute to keeping inflation under control, Trichet said. The firm anchoring of medium- to longer-term inflation expectations is of the highest priority.
- The ECB kept its benchmark interest rate unchanged at 4.0%, as expected. President Trichet said the council was unanimous in its decision to leave rates unchanged and indicated that there were no calls for a rate cut or a rate hike at the council meeting.
- The Bank of England, as expected, lowered its key rate by a quarter percentage point to 5%.
- Chinas economy grew at a soaring upwardly-revised rate of 11.9% in 2007, the National Statistics Bureau said. The nominal GDP rose 24.95 trillion yuan, or $3.61 trillion at current exchange rates. The bureau also raised the estimate for Chinas 2006 GDP growth by 0.5 percentage point to 11.6%. Meanwhile, the dollaryuan today fell below seven for the first time in over a decade as the dollar continues to depreciate against the yuan. It has gained 4.5% so far this year against the dollar after rising 7% in 2007.
FX Strategy Update
Join the Discussion