The dollar has extended its recent gains versus its major European rivals on Thursday, but has weakened in comparison to the Japanese Yen. Concerns over the global economic situation have lowered the risk appetites of investors on Thursday. The safe haven status of the U.S. currency and the better than expected U.S. jobless claims number for the week contributed to the dollar’s strength.
The U.S. FOMC minutes released late Wednesday from the June meeting disappointed many investors. Many had hoped that a third round of quantitative easing was on the horizon, but only a few central bank officials thought that further asset purchases would be necessary.
The risks surrounding the economic outlook for the euro area continue to be on the downside, the European Central Bank said in its monthly bulletin published on Thursday. Downside risks relate to a renewed increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Another risk is increase in energy prices over the medium term.
The amount of overnight cash deposits of financial institutions at the European Central Bank more than halved after the bank cut the overnight deposit rates to zero last week. As funds parked at the ECB now earn no interest, banks are likely to raise lending and thereby support economic activity.
The greenback has been climbing in comparison to the Euro since the beginning of July. The U.S. currency has climbed from $1.2692 at the end of June, to a 2-year high of $1.2166 on Thursday.
Production in Eurozone’s industrial sector bounced back unexpectedly in May, but the sector is unlikely to sustain the gains given the sluggish economic activity in the single-currency bloc owing to the debt crisis. Industrial production rose 0.6 percent month-on-month in May, following a 1.1 percent decrease in April. The outcome was better than economists’ expectations for a flat reading.
Wholesale price inflation in Germany eased to 1.1 percent in June from 1.7 percent in May, the Federal Statistical Office said Thursday.
French annual inflation remained unchanged in June, data from the statistical office Insee showed Thursday. Inflation, as measured by the harmonized index of consumer prices, rose 2.3 percent year-on-year in June, the same rate as seen in May. Economists were forecasting the rate to slow to 2.2 percent.
The Office for Budget Responsibility on Thursday said the U.K. fiscal position is unsustainable if the government absorbs national income simply to pay the interest on its debt. Ageing population is adding upward pressure on public spending, it said. According to OBR calculation, expenditure will rise to 40.8 percent of GDP by 2061-62, an increase of 5.2 percent of GDP in today’s term.
The dollar bounced back from Wednesday’s 4-day low of $1.5577 versus the pound sterling and has set a one-month high of $1.5392 on Thursday.
Japan’s central bank on Thursday decided to increase its asset purchase program by JPY 5 trillion, while reducing its credit loan facility by the same magnitude, maintaining its quantitative easing essentially unchanged.
Policymakers at the Bank of Japan increased the asset purchase program that is scheduled to extend through the end of 2013 to JPY 45 trillion, while keeping its target for purchases of government bonds unchanged. The program size for the period ending December 2012 was similarly raised to JPY 40 trillion.
Meanwhile, the central bank today lowered its fiscal 2012 growth forecast for the economy to 2.2 percent from the 2.3 percent projected in April. The outlook for fiscal 2013 was left unchanged at 1.7 percent.
The buck briefly touched a 4-day high of Y79.954 versus the Japanese Yen Thursday morning, but has since fallen to around Y79.300.
With fuel prices showing a substantial decrease in the month of June, the Labor Department released a report on Thursday showing a much bigger than expected drop in import prices for the month. The report showed that import prices tumbled by 2.7 percent in June following a revised 1.2 percent drop in May. Economists had expected prices to fall by 1.9 percent compared to the 1.0 percent decrease originally reported for the previous month.
Export prices also showed a notable decrease, falling by 1.7 percent in June after sliding by 0.4 percent in May. The drop far exceeded economist estimates for a decrease of about 0.2 percent.
First time claims for U.S. unemployment benefits unexpectedly showed a notable decrease in the week ended July 7th, according to a report released by the Labor Department on Thursday, although the drop was partly due to seasonal distortions.
The report showed that jobless claims fell to 350,000 from the previous week’s revised figure of 376,000. The drop surprised economists, who had expected jobless claims to edge up to 375,000 from the 374,000 originally reported for the previous week.