The Dollar drops as investor view the FED's stimulus to continue well into 2010

The greenback traded lower versus the euro before the U.S. payrolls report on speculation the Federal Reserve will trail other major central banks in ending economic stimulus. The U.S. unemployment rate rose to 9.9 percent last month from 9.8 percent in September, according to the median estimate of 81 economists in a Bloomberg survey before tomorrow’s Labor Department report. The S&P advanced 1.5 percent after the U.S. Labor Department announced that initial jobless claims dropped to 512,000 in the week ended Oct. 31. The Fed reiterated yesterday its intent to keep interest rates “exceptionally low” for “an extended period” as long as the inflation outlook is stable and unemployment fails to decline. Policy makers held the target rate for overnight lending between banks in a range of zero to 0.25 percent. The EUR/USD is currently trading at $1.4870 as of 20:41pm, GMT with a bullish trend.

The British pound jumped against the dollar on Thursday after the Bank of England expanded its quantitative easing program by 25 billion pounds, against some analysts expectations of a bigger increase expected at 50 billion. The announcement helped the sterling recover losses made in early trade, when traders had been divided on the size of any increase in the asset-buying plan, if the bank extended it at all. The BoE left interest rates unchanged at a record low of 0.5 percent, as expected. Analysts said the pound rallied as market participants were relieved the BoE did not take more drastic action on quantitative easing, and on the view that it may hold off from implementing aggressive stimulus through the end of the year. The GBP/USD is currently trading at $1.6590 as of 21:00pm, GMT with a bullish trend.

European Central Bank President Jean Claude Trichet said officials will withdraw some of the emergency liquidity measures introduced to fight the worst recession since World War II. “Not all our liquidity measures will be needed to the same extent as in the past” as the economy recovers, Trichet said at a press conference in Frankfurt today after the ECB left its benchmark interest rate at a record-low 1 percent.
Extraordinary liquidity measures will be “phased out in a timely and gradual fashion” in order to “counter effectively any threat to price stability over the medium to longer term,” he said. Trichet indicated that the auction of unlimited 12 month- loans, one of the ECB’s flagship policies this year, won’t be continued after next month’s operation. “The market is not expecting that we will prolong” it, he said. “And I will say nothing to dispel the sentiment of the market.”

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