The US dollar edged higher against major currencies

The US dollar edged higher against major currencies, with the exception of the Japanese yen, as investors shy away from riskier assets on worries of huge budget deficits in the Eurozone. The US dollar remained strong despite an unexpected increase in the initial jobless claims data in the recent week.
Tomorrow’s important US non-farm payroll report is expected to provide further direction for the US dollar. The report is expected to reveal 15,000 new jobs were added during January.

The euro depreciated after European Central Bank (ECB) President Jean-Claude Trichet indicated the economic outlook remains uncertain. He expressed concerns over the deficit state in Greece and peripheral nations, while intimating that stagnant growth and inflation will continue. As expected, the ECB left interest rates unchanged at 1 percent.

Sterling gained slightly after the Bank of England (BOE) left rates unchanged and suspended its “quantitative easing” program. However, BOE said that they may make asset purchases if needed. The comments suggested recovery in the UK will be at a slow pace. The currency was also weighed down by optimism that Friday’s US jobs report will come out strong.

The Japanese yen benefited from negative sales and employment data coming from Australia and New Zealand. The weakening of the high-yielding currencies, combined with concerns of budget deficits from Greece and other peripheral euro zone countries, led investors to buy into the safe haven currency.

The Canadian dollar is trading steady ahead of tomorrow’s Canadian and U.S. jobs data. Canada is expected to add 15,000 jobs in January.

The Australian dollar skidded after Australian retail sales came out weaker than expected in December. However, losses were limited after a surprise gain in the housing market, suggesting healthy economic growth and the possibility of more rate hikes. Meanwhile, ongoing concerns about China’s plan to tighten bank lending will continue to limit Aussie gains. If China’s growth slows, demand for Australian exports may be curbed.

The New Zealand dollar also fell after the country’s unemployment rate rose to 7.3 percent in the fourth quarter- a 10-year high. Thus, the Reserve Bank of New Zealand may be reluctant to hike rates anytime in the foreseeable future.
Sentiment remains weak on anxieties about China’s bank lending policies.