by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar was subjected to further selling pressure in Europe on Thursday and dipped to beyond the 1.53 level. The dollar secured some temporary relief ahead of the ECB press conference before weakening to fresh record lows near 1.5390.
New US jobless claims fell to 351,000 in the latest week from 375,000 previously, but the impact was offset by a further increase in continuing claims. Markets will inevitably be nervous ahead of the crucial Friday payroll report. Another monthly decline in employment, allied with a further increase in unemployment, would further undermine confidence in the economy while a substantial increase would provide some immediate relief.
Elsewhere, pending home sales were unchanged for January while foreclosure rates increased to a record high for the fourth quarter. Overall dollar confidence remains very weak with fears that the Fed will have to sacrifice the dollar to help stave-off a deepening recession.
As expected, the ECB left interest rates at 4.00% following the latest council meeting. In the press conference following the meeting, the bank downgraded its growth forecasts and also increased the inflation forecast. ECB president Trichet generally concentrated on the inflation risks which supported the Euro.
There was also an absence of warnings over the Euro’s level, in contrast to expectations that the bank would protest more aggressively against currency strength. The lack of rhetoric will dampen expectations of possible intervention to support the dollar and encourage further near-term selling.
Yen
The dollar was unable to make headway above the 104.0 level on Thursday and weakened to levels around 103.50 in early European trading.
There have still not been any major protests against yen gains by Japanese officials and in trade-weighted terms the Japanese currency is still relatively weak which should limit official action. There will still be some speculation over a concerted G7 approach to put a floor under the dollar through verbal intervention which will create caution over aggressive yen buying.
Underlying risk aversion was still an important market factor and, allied with general dollar weakness, pushed the US currency down to lows around 102.60 in New York.
Sterling
Sterling was weak against the Euro ahead of the UK interest rate decision with record lows close to 0.7690, although Sterling was firm against the dollar.
The latest Halifax house price index recorded a further decline of 0.3% for February with a 4.2% annual increase which maintained expectations of a sustained slowdown in the sector.
The Bank of England left interest rates unchanged at the latest MPC meeting and also issued no statement. As usual, the vote split was not announced and will be released with a delay of around two weeks. The decision to leave rates on hold reinforced expectations of a gradual approach by the central bank which provided some support to Sterling.
The UK currency pushed to highs near 2.01 as the dollar came under sustained selling pressure while there was a recovery to 0.7650 against the Euro.
Underlying risk aversion was still an significant negative influence for the UK currency as financial-sector fears continued to increase. Further stresses within the banking sector would tend to undermine Sterling.
Swiss Franc
The Swiss currency found support towards 1.5850 against the Euro on Thursday and strengthened back to levels beyond 1.5750 in New York as Wall Street came under renewed pressure. The franc also tested record levels near 1.02 against the dollar.
The franc continued to draw support from elevated stresses within the financial sector, especially with increase reports of funds missing margin calls which increased fears over a liquidation of leveraged investments.
The seasonally-adjusted unemployment rate fell to 2.5% for February which will underpin confidence in the economy, although global influences will tend to remain dominant at this stage.
Source: VantagePoint Software, Market Technologies, LLC
Australian dollar
The Australian currency has gained fresh support from US dollar weakness and from the renewed strength in commodity prices. Domestically, the trade deficit increased to AUD2.7bn in January from AUD1.9bn the previous month as imports rose strongly. The widening deficit will cause some concerns, although the immediate impact is likely to be limited. There was a 1.9% increase in building approvals for the month.
Global trends will remain decisive in the short term and there are still high risks associated with global credit markets while US dollar weakness will provide support. In this environment, volatility levels are likely to remain higher in the short term. From highs near 0.9390, the Australian dollar dipped to 0.9250.
