The euro rose today in early trading against the dollar as Asian markets surged again. At 13:30 GMT, during its monthly economic press conference, the ECB hinted that it would slowly start withdrawing emergency liquidity and also boosted EZ GDP growth forecasts. Though the ECB left interest rates at 1.00%, bank President Jean-Claude Trichet said that the next 12-month refinancing operation for banks would be the last. The central bank also lifted its economic growth forecast for 2009 and 2010.
The EURUSD jumped on the news initially, nearing a 16-month high of around $1.5140, but then gave up over 60 pips when Trichet said that plans to wind down some emergency programs were not a signal that interest rates would be increased in the near future.
In seperate news, the euro got a small boost as Bank of America said it would repay bailout funds to the U.S. government, which increased risk-appetite in the markets somewhat.
There was mixed economic news out of the United States today, as weekly initial jobless claims were less-than-expected, but a key manufacturing sector report was disappointing. The net effect on the Eurodollar was nominal.
Meanwhile, in Washington DC, Fed Chairman Bernanke made his case for getting a second term as FED chairman in testimony before Congress. He said that the Fed's forceful actions have prevented a devastating crisis from turning into something possibly even worse. He also pledged to maintain price stability and said that fiscal deficits eventually have to come down. It is worrisome that rising U.S. debt and deficits may continue to undermine the dollar and eventually cause inflation.
Seperately, U.S. Treasury Secretary Timothy Geithner reiterated the importance of a strong dollar and said the United States must persuade the world that it will be more fiscally responsible.
The markets are eagerly awaiting tomorrow's NFP jobs numbers out of the US at 13:30 GMT. Until then, the EURUSD will likely trade in a range between 1.5060 and 1.5100.
The USDJPY rose for the second straight day after the Bank of Japan said this week it would provide new three-month funding to banks to combat deflation and after top officials warned that the currency had grown too strong. BOJ Governor Masaaki Shirakawa said that the central bank does not target FX for monetary policy but if the bank's easy stance becomes widely known in markets, it will have certain effects on the currency market in the long run. The dollar was up as high as 88.47 Y, before the pair met some short-term resistance and reversed path. The Dollar-yen is now recovering a bit after plummeting to a 14-year low of of 84.82Y last week.