A busy morning in New York as U.S. employment indicators and announcements by both the ECB and BOE are setting the tone for the market.  It seems that U.S. dollar weakness continues to prevail, given the momentum from last night’s positive Australian employment report and further views that an economic recovery, in the global sense, is in the works.  As a result, buyers have pushed the Euro higher to trade $1.4765 against the U.S. dollar with the British pound breaking the $1.6000 figure to trade at $1.6052.

U.S. initial jobless claims surprised the masses as first time claimers of unemployment benefits fell last week to a level not seen since the beginning of the year.  For the week, applications dropped by an impressive 33,000 to 521,000 – significantly lower than the 540,000 that was predicted by analysts.  Today’s weekly Labor Department report conflicts with last week’s non-farm payrolls figure, giving some hope that there is now stabilization in the broader labor market.  Subsequently, the four week moving average has now dropped a haircut below 540,000, setting up for another interesting employment release next month.

As expected both the European Central Bank and the Bank of England have kept their interest rates steady following announcements this morning.  However, key elements have now sparked some speculation to the downside, which may help the greenback gain some traction against both the Euro and pound sterling.

Keeping interest rates at a record low of 0.50%, the Bank of England is likely waiting till November to make any real decisions regarding monetary policy.  Although confidence has edged up slightly, along with some recovery in the housing sector, things haven’t really improved in the UK economy.  Manufacturing continues to place a lag on overall productivity as labor concerns continue to swirl – last print has unemployment in the country soaring to 7.8 percent annually.  The fragility of the economy has now placed even more emphasis on any possible extension of the Quantitative Easing plan.  Already at 175 billion pounds, there is still hope that the plan will be extended another 25 billion in order to pump even more funds into the market in order to prop up the economy.  Such a move will place significant pressure on the British currency as supply will overrun demand.  As a result, look for upcoming economic data to heavily influence the central bank November decision.

European Central Bank members additionally decided to keep to their key benchmark interest rate, citing that current level of interest rates remain “appropriate” for the time being.  This decision is likely to remain for an extended period given the fact that economic growth seems choppy at best for the region.  Production has improved slightly, contrary to overall labor markets which continue to remain weak.  Should policy makers increase lending rates to soon, risks remain abound that current nascent growth will be choked off.  As a result, the ECB will likely continue to work with lenders to free tight lending markets and hope that firm stabilization will come sooner than later.  Nonetheless, the underlying currency continues to be well supported against the U.S. dollar on worrisome economic fundamentals in the world’s largest economy.

Tags: Bank of England, BOE, British Pound, ECB, Euro, European Central Bank, US Dollar

This entry was posted on Thursday, October 8th, 2009 at 10:31 am and is filed under British Pound, Economic Indicators, Euro, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.