In overnight trading the US dollar saw some gains on the back of dismal eurozone data, touching a 3-week high, though following this morning’s release of initial claims for U.S. unemployment benefits the USD has tumbled to session lows against the euro. Initial unemployment claims fell to 467,000 in the week ended Jan. 3, from 491,000 the previous week, failing to ease concerns about rising U.S. unemployment.
With a continued downward spiral expected on Wall Street this morning following disappointing sales figures from Wal-Mart Stores Inc, the world's largest retailer the dollar will remain under pressure. Additionally, aluminum giant, Alcoa said yesterday that it will be eliminating 15% of its global workforce, perpetuating the view the U.S. economy is deteriorating fast with global reverberation that will continue to weigh on the dollar. The euro has been moving in a wide range this morning, as dismal data highlighted concerns about a deteriorating euro zone economy.
The euro was weighed down after figures showed an unprecedented 10.6% month-on-month fall in German exports in November as global demand for cars and other manufactured products have plummeted due to a global recession. This data further fueled the view that the recession is deepening, which may require faster interest rate cuts by the European Central Bank. The current expectation is for the ECB will cut its key lending rate by 50 basis points or more at its policy meeting on January 15.
The British pound climbed to fresh 3-week highs against the dollar and the euro after the Bank of England met market expectations with a 50 basis point interest rate cut, bringing rates to an all time low in continuing attempts to buffer the UK economy from a deep recession. The BoE has noted that the significant fall in the value of the pound has helped to temper the need for additional deeper cuts and would act as a stimulus going forward.
The Japanese yen strengthened today against the USD nearly 2% following the dollars’ pain from the deepening recession.
With oil prices down nearly 12% yesterday and lower again today, the Canadian dollar is range bound against the USD, and quite a bit lower than Tuesday’s 2-month highs. The deepening U.S. recession and job losses are also weighing on the currency as investors on both sides of the border are bracing for Friday’s December employment data.
The Australian dollar tumbled from 3-month highs following the release of painful economic data, highlighting the risk of the recession contagion spreading to Australia. Building approvals or new homes plummeted 12.8% in November, the largest drop in six years and far below forecasts of a 1% fall. Analysts are pricing in a 75 basis point rate cut when the Reserve Bank of Australia (RBA) meets in February and another 50 basis points cut in March, which will significantly diminish the Aussie’s yield advantage.
The New Zealand dollar followed suit, falling from recent 3-week highs as investor steered clear of risk. Economists see a New Zealand recession extending well into this year, requiring more interest rate cuts to prop up the economy. Rates are currently at a 5 year low. The next rate review is on Jan. 29.
