Yen Spikes Higher in NY Trading on Expiring Options Contracts, US Equities Recover From Yesterday's Losses

UK Claimant Count Increases by 78K in December

The UK economy shed 77.9K jobs in December, a number that came in lower than expectation but is still the second-highest amount since 1991. The total people now claiming jobless benefits rose to 1.16 million, the highest level since 2000. The pace of firings has picked up as the labor market continued to deteriorate to end the 4th quarter. The ails that have bogged down the UK financial sector as a result of the credit crunch, has spread to services and manufacturing, impacting the real economy in a very tangible way.

UK Bank of England Minutes Show 1 Vote for 100 Basis Point Cut

In its meeting minutes, the Bank of England decided 8 to 1 to cut rates to by 50 basis points in its January meeting. One member, David Blanchflower voted for a 100 basis point cut, as he has been at the forefront for calling for more aggressive actions in the face of the deepening recession. The other members judged such a big move would have unsettled financial markets and could have damaged confidence in the real economy as well.

UK Public Borrowing Elevated

The UK government borrowed 14.9 billion pounds in December and the public sector net cash requirement hit a record high of 44.2 billion pounds. The government is feeling the strain from lower tax receipts as the global recession limited economic activity. At the same time, the government has had to spend money recapitalizing the Royal Bank of Scotland.

GBP/USD - Pound Slides to Lowest Level Since 1985

The Pound continued its decent today against its rivals falling to the 1.3620 level in NY trading. The swing from high to low amounted to 330 pips, but that was still a less volatile fall than what we have seen the previous two sessions. In late afternoon trading, the Pound managed to pare some of its earlier losses. Today's low was the weakest the Pound has been against the Dollar since 1985.

EUR/GBP - Euro Caps 500 Pip 4-Day Rally at 0.9430

The Euro-Pound which we haven't looked at this week yet, continued its move against the Pound. Following sideways action between January 8th and the 18th, the pair has embarked on a new uptrend. From its low near 0.89 last Friday the pair has rallied 500 pips to set a new high near 0.9430.

GER Producer Prices Decline 1% in December

In Germany, producer prices declined 1% in December, following a 1.5% decline in November as lower oil prices helped cut production costs. That figure was close to expectations, and continues showing a trend of disinflation in the largest economy in the Euro-zone. On the year prices eased to 4.3%, a marked reduction from the levels seen in late summer.

USD/JPY - Yen Spikes Higher as Options Contract Expires

Yen cross pairs saw a very sharp spike today around 10 AM, which was related to an options expiry that took place around that time. The Dollar-yen pair plunged almost 300 pips around that time, hitting support at 87.10 and then rebounded throughout the afternoon. Following a sharp decline in US equities yesterday, stocks made up a good amount of their losses helping strengthen the greenback in NY trading.

EUR/CHF - Euro Surges in NY Trading as US Stocks Rally

With stocks climbing in the US the Euro-Swiss Franc pair saw a strong 290 pip rally to the 1.5045 level. That was the highest the pair has been since January 12th, and runs up against resistance from that week.

Upcoming Releases

Coming up tonight, New Zealand will post its manufacturing PMI and Japan releases its trade balance. Overnight, Switzerland releases its ZEW expectations, the Euro-zone posts data on industrial new orders, and the UK reveals a measure of manufacturers' expected orders.

Tomorrow, Canada will release data on retail sales and its leading index. The US will post building permits, housing starts, jobless claims, and a government measure of house prices.