September 2, 2010

Daily outlook

The U.S. dollar opened mixed on Thursday as investors largely kept the major currencies pairs within their recent ranges ahead of Friday’s influential nonfarm payrolls report.

The greenback gave up modest ground to the euro after positive government debt auctions in Spain and French quelled concerns about the region’s fiscal struggles. As expected, the European Central Bank left its benchmark interest rate unchanged at a record low 1% on Thursday. Investors now look to a post-meeting news conference by ECB President Jean-Claude Trichet at 8:30 a.m. ET. The ECB chief might extend the central bank’s popular lending program to fiscally strapped member states such as Greece, Spain and Portugal. The central bank shared by 16 nations might also tweak its growth forecast higher, given the strong quarterly performance by core state German during the second quarter.

The U.S. currency gained on sterling, following weaker than expected U.K. housing data in August that pointed to a recovery losing vigor.

Sweden’s crown rose broadly after the central bank as expected boosted interest rates by a quarter point to 0.75% and signaled another hike in the months ahead. The Swedish currency strengthened to a 3-week high on the dollar and to its loftiest in over two years against the euro.

The Canadian dollar opened flat against the greenback Thursday, following solid gains the day before which came amid soaring equity and commodity markets.

A raft of U.S. data Thursday on jobless claims, productivity and labor costs, factory orders and pending home sales should offer key clues on the health of the recovery.

Currencies outlook

EUR: The euro held near the previous day’s two-week high on the dollar as well-received government debt auctions Thursday in Spain and French soothed lingering concerns about the bloc’s debt crisis. However, the main issue influencing the single currency today was a meeting of the European Central Bank. The ECB’s Governing Council surprised no one when it announced that it had left its key interest rate unchanged at 1%, a record low. The central bank’s benchmark lending rate has remained at an all-time low for 16 straight months, a streak that many expect to extend well into 2011 to bolster the uneven recovery under way in the bloc. While Germany during the second quarter notched its best quarterly rate of growth during this year’s April-to-June period, some of the region’s peripheral nations continue to struggle to recover. The Greek economy, the nation at the heart of the bloc’s sovereign debt crisis, remains in recession. In the ECB’s post-meeting news conference, bank President Jean-Claude Trichet said that euro zone interest rates were appropriate at their current record low level of 1% and that the stance was accommodative, suggesting more monetary easing measures are on the table. Though Mr. Trichet sees an uncertain outlook, officials upwardly revised the region’s growth projections for 2010 to a range of +1.4% to +1.8% from +0.7% to +1.3%. On its liquidity program that offers unlimited funds to banks in the euro zone, the ECB will extend that program at least until about the middle part of January. The euro rose to fresh session peaks on the dollar following the early stages of the central bank president’s remarks.

CHF: The Swiss franc rose Thursday on the back of upbeat growth data during the quarter ending June 30. Swiss GDP grew 0.9% during the second quarter, a touch below the 1.0% growth rate during the first quarter but above the 0.8% expansion that market watchers had expected. On an annual basis, the Swiss economy grew 3.4% during Q2, well above both the prior quarter’s 2.3% growth rate and the 2.7% expansion pace traders had forecast. The encouraging news on the Alpine economy kept the Swissie in earshot of yesterday’s early December high against the dollar and in sight of Tuesday’s all-time peak on the euro.
GBP: The British pound fell broadly on Thursday as another day of soft U.K. economic results reinforced expectations for a declining rate of growth in the months ahead. Nationwide home prices in Britain increased 3.9% in August, a marked decline from the 6.6% gain in July and well below the 4.9% forecast. The pound was slow to advance against the U.S. dollar Wednesday after data showed the U.K. factory industry unexpectedly slowed in August, adding to concerns about the outlook for British economy.
USD: The U.S. weekly jobless claims unexpectedly fell by 6,000 in the latest period to 472,000. The previous week was revised up to 478,000 from the 473,000 that was first reported. Investors had expected the number of people seeking unemployment benefits to increase by 2,000 last week. U.S. productivity, a gauge of hourly output by worker, fell 1.8% during the second quarter, which was just below the 1.9% decline investors had expected. U.S. unit labor costs, a measure favored by the Fed on inflation and profit pressures, increased 1.1% during the second quarter. Traders had expected a 1.2% gain during Q2. On balance, today’s U.S. numbers highlight a fragile economy that continues to recover but at a very slow pace.