by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar was unable to strengthen back through the 1.47 level against the US dollar on Thursday and settled close to 1.4750 ahead of the New York opening.
US new Jobless claims were slightly lower in the latest week at 349,000, although the number of continuing claims increased which suggests that it is more difficult to find new jobs.
The Philadelphia Fed index fell again to -24 in February from -20.9 the previous month and there has been is a very sharp decline over the past two months. The index is also at a seven-year low and will reinforce fears that the US economy entered a recession in the first quarter of 2008. Leading indicators also fell for the fourth successive month with the data also suggesting recession conditions.
These fears will increase pressure for more aggressive action by the Federal Reserve to cut interest rates and support the economy. The dollar will, therefore, also remain at risk in the short term as economic fears intensify. A key factor will be whether the fears are concentrated on the US or if there are greater concerns over the global environment. If international fears increase, then the dollar will be in a stronger position to secure defensive buying support.
The Euro-zone current account weakened significantly for December with a EUR10.3bn deficit for December compared with a small surplus the previous month. The deficit is certainly not at alarming levels, but will reinforce fears that the economy is losing competitiveness.
Yen
The yen traded close to the 108.0 level against the US dollar in Asian trading on Thursday as neither the yen or dollar were able to break key levels.
Domestically, the trade account was in deficit for January, although this is a common seasonal feature for this month and exports held firm. The all-industries index fell by 0.2% in December to give a 0.4% year-on-year decline. The data is not positive for the yen, although the impact should be limited.
The latest capital account data recorded a small surplus and markets will be wary of seasonal capital repatriation over the next few weeks ahead of the fiscal year-end.
The yen strengthened sharply following the US data releases as the dollar dipped and the move into the Japanese currency was compounded by increased risk aversion as Wall Street came under pressure.
Sterling
Sterling edged higher to around 1.9450 against the dollar in early Europe on Thursday.
The latest retail sales data recorded a 0.8% increase for January after a revised 0.2% decline the previous month with an annual increase of 5.6%. Gains were again led by price discounting as prices fell 1.2% over the year. The firmer headline data will tend to reinforce Bank of England caution over cutting interest rates aggressively even though the data is volatile.
MPC member Sentance reinforced the cautious message on Thursday with comments that he saw a more sustained slowdown in the economy, but that the inflation risks had increased.
The headline figure pushed the UK currency sharply stronger and there was a peak above the 1.96 level against the dollar as the US currency also dipped sharply. Sterling was struggling to sustain gains beyond 0.7550 against the Euro. A series of favourable data releases will be required to trigger a sustained reversal in sentiment.
Swiss Franc
The Swiss franc found support weaker than the 1.10 level against the dollar on Thursday and strengthened sharply in New York with a peak close to 1.0865. The Swiss currency also found support around 1.6240 against the Euro before strengthening rapidly to 1.6130.
A renewed spike in risk aversion following the weaker than expected US data triggered renewed support for the Swiss currency while the dollar also suffered widespread losses.
Producer prices rose 3.7% in the year to January which will keep the National Bank on inflation alert and provide some franc support. The January trade surplus was stronger than expected at CHF1.22bn, although the market impact should be limited.
Australian dollar
The Australian dollar edged stronger in local trading on Thursday. There were no significant data releases with the strong interest rate differentials still providing support to the Australian currency.
There was further support from the strength in commodity prices while regional stock markets were firm. The favourable influences are liable to continue in the very short term, but there are still very important risks surrounding the global economy. In this context, the Australian dollar was blocked near the 0.92 level even though the US currency weakened.
