The U.S. Dollar traded mostly lower versus the major currencies today in light trading as traders curtailed activity ahead of Friday’s U.S. Non-Farm Payrolls Report. The employment report is expected to show a decline of 65,000 to 90,000 jobs, pushing up the unemployment rate to 9.6%. The public-sector part of the report is expected to show a loss of at least 165,000 jobs due to government firings of census workers. The private-sector is forecast to have added at least 100,000 jobs.
The focus will most likely be on the private-sector number. If this number comes out better-than-expected, look for the Dollar to rise.
The Dollar has been under pressure most of the trading day due to a surprise drop in weekly initial claims. Unemployment benefits rose by 19,000 to 479,000 in the latest week. Pre-report estimates called for a drop to 453,000.
The European Central Bank and Bank of England monetary policy committees voted to leave their respective benchmark interest rates unchanged at historically low levels. The ECB left its key borrowing rate at 1%. The BoE agreed to maintain its 0.50% level. Both moves by the central banks were expected.
Following the release of the interest rate decision, ECB President Trichet noted that the European bank stress tests completed since the last meeting have helped increase transparency and fueled a move toward restoring market confidence in the banking sector.
In the wake of recent strong Euro Zone economic data, analysts had expected Trichet to outline an exit strategy or discuss the ECB’s plan for its special liquidity provisions. In other words, is the ECB going to continue to provide free-flowing liquidity to the market or begin to withdraw it. Trichet indicated that the ECB would consider action on this next month.
Trichet failed to say anything really bullish about the Euro, but actually may have helped limit gains by stating that the second half of 2010 was likely to be “much less buoyant” than the second quarter because of the implementation of new financial austerity measures. He also added that it was too early to “declare victory” in the economic crisis.
Based on today’s comments, the Euro is more likely to continue to be driven by economic news regarding the U.S. economy. At this time, the ECB seems a little more upbeat about the Euro Zone economy while the U.S. Fed is being encouraged to consider the renewal of its quantitative easing program to ward off a potential double-dip recession. As long as the U.S. economy remains weak and interest rates low, look for the Euro to remain firm.
Early Thursday the Bank of England policymakers voted to leave its benchmark interest rate at the historically low 0.5%. This move was expected because BoE officials are still unsure what effect the newly implemented austerity measures will have on the economy. Furthermore, there is still uncertainty over what impact the upcoming new taxes will have on economic growth. Some investors feel that the central bank will have to remain flexible with its monetary policy in case the developing economic recovery stalls.
Lately the British Pound has been trending higher, reaching a major retracement zone. Most of this move has been driven by speculators looking for improvements in the U.K. economy while the U.S. economy falters. The recent Second Quarter GDP Report was better than expected leading some investors to believe that the economy is on the road to recovery. Skeptics cite the fact that this reading took place before the austerity measures were implemented.
High inflation has also had investors worried. One of the challenges for the Bank of England will be controlling inflation without stifling growth. Uncertainty over how the BoE intends to do this may limit gains and could begin to put pressure on the Sterling.
Technically, the British Pound found resistance at a key .618 retracement level earlier this week at 1.5967. Holding this level could trigger the start of a break back to 1.5635. Overnight the Sterling traded below 1.5884, putting this currency lower for the week. The market bottomed early in the trading session and put in a short-term top shortly after the central bank announcement.
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