The US dollar extended losses against a basket of currencies after the G20 called for more funding for the International Monetary Fund. The news pushed the euro higher against the greenback while the yen approached the 100 mark. On Thursday, sources also confirmed that in the latest draft of the G20 communique, calls for an increase of International Monetary Fund resources by $500 billion, which would make available total funding of $750 billion.
The euro strengthened the most against the US dollar in two weeks after the European Central Bank lowered its benchmark interest rate by less than forecast. Policy makers cut the main refinancing rate 25 basis points to 1.25 percent today, compared with the 50 basis points economists expected. The single currency also had its biggest gain in more than a month versus the yen after ECB President Jean-Claude Trichet said the region’s economic outlook is “broadly balanced” and stimulus measures “should help demand. He followed those comments by saying the ECB would still decide on non-standard policy measures, intended to offer details at its next meeting and did not rule out that interest rates, already at record lows, could continue to fall.
Sterling rose sharply on Thursday on optimism about the prospects for coordinated steps by Group of 20 leaders and solid UK house price data. The news pushed the pound over one and a half percent higher against the US dollar. An industry report showed the UK’s home prices unexpectedly climbed last month and UK stocks also advanced for a third day on the news, supporting investor appetite for riskier assets. Nationwide Building Society reported that the average cost of a home increased 0.9 percent in March from the previous month, pulling sterling into positive momentum as speculation increases that the pace of the UK’s contraction may be slowing.
The Japanese yen weakened against the US dollar, pushing the dollar near the 100 level, its highest level since last November. Japanese business confidence crumbled to a new low in March, according to the Bank of Japan's Tankan survey that showed demand collapsing and corporate funding at the tightest on record, despite near-zero interest rates. The rapidly deteriorating Japanese economy is expected to push the pair above the 100 yen level.
The Canadian dollar gained against the US dollar on Thursday, supported by buoyant equity markets, a decrease in risk aversion and firmness in the price of oil. The price of oil, of which Canada is a key exporter, rose more than $3 a barrel to above $51 on Thursday, helped by rising equities and as investors hoped G20 leaders would deliver concerted measures to restore global growth.
The Australian dollar strengthened on Thursday, rising to a 12-week high against the euro and above 70 US cents, helped by surprisingly strong trade data and interest rate cut delivered by the ECB. Australia's trade surplus more than doubled in February, as exports of resources remained surprisingly resilient in the face of global recession, while imports were curbed by sagging demand at home. The New Zealand dollar steadied on Thursday against the US dollar. The kiwi was caught between the opposing forces of improved risk appetite, on the back of rising Asian stock markets, and a bleak domestic economic outlook and the likelihood interest rates will stay low for some time.
