The US dollar weakened to six-week lows against most major currencies after stronger than expected results from JP Morgan Chase and better than forecast jobless claims. JP Morgan’s earnings surpassed expectations and boosted hopes for a US recovery, prompting investors to sell the safe-haven status dollar for riskier assets. The second largest US bank also warned that credit quality in consumer mortgages and credit cards were deteriorating faster than expected. Data from the Labor Department showed the number of US workers filing new claims for jobless benefits fell to its lowest level since January but the data was distorted by automotive industry layoffs. Jobless claims for the week ending July 11 fell to a seasonally adjusted 522,000, lower than forecast of 565,000. The dollar is likely to remain under pressure in the near term as positive earnings and a rally in equity markets add to the optimistic mood amongst investors.
Overnight, the euro rallied against the dollar after JP Morgan’s positive earnings report. However the euro erased some of those gains after a survey from the Philadelphia Federal Reserve Bank said its business activity index fell to minus 7.5 in July, suggesting the US manufacturing slump continues.
Market participants expect euro-dollar trade to be choppy later in the day due to large option positions set to expire.
The British pound continues to trade in tight ranges after hitting a two-week high against the dollar. After a survey from the Philly Fed showed the US manufacturing sector continues to contract, the pound erased some of those gains against the dollar. Yesterday, BoE Deputy Governor Charles Bean stressed the central bank was not ending its GBP 125 billion quantitative easing program, and tried to clarify some of the unease amongst market players. The Japanese yen held its gains against the dollar despite the increased risk appetite. Japanese manufacturer confidence improved for four months in a row as exports and output pick up, fueling hope that the world’s second-largest economy may be recovering from its worst recession sine World War II.
The Canadian dollar weakened against the US dollar as investors pocketed recent gains that many experts said might have been overdone after a surge in the prior session. Another factor in the loonies decline over the greenback comes from lower crude prices as oil drops below $61 a barrel.
The Australian and New Zealand dollar strengthened against the US dollar as sentiment for risk appetite increased amongst investors. Overnight, the Aussie and the Kiwi touched a low after ratings agency Fitch cut the country’s outlook and threatened a downgrade. Fitch cut New Zealand’s sovereign outlook to negative from stable citing a large current account deficit and growing indebtedness, which could ultimately mean another rating cut in the next 12-24 months.
