The dollar is down sharply against the Euro Thursday and is also losing ground against the pound sterling, after the European Central Bank and the Bank of England maintained their respective interest rates. However, comments from ECB President Mario Draghi appear to have had the biggest effect on investors.
The European Central Bank left the key interest rates unchanged at a record low at the first rate-setting session of the year as the bank shifts its focus to underpinning the fragile economy amid some feeble signs of stabilization.
The central bank of 17 nations maintained the refinancing rate at 0.75 percent for a sixth consecutive month in January, following the Governing Council meeting in Frankfurt on Thursday. The decision was in line with economists’ expectations.
European Central Bank President Mario Draghi said on Thursday that the euro area may see a gradual recovery later in the year as there are some modest signs of stabilization. While speaking at the post-decision press conference in Frankfurt, Draghi said, “More recently several conjunctural indicators have broadly stabilized, albeit at low levels, and financial market confidence has improved significantly.”
“Later in 2013 a gradual recovery should start,” he added. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring, Draghi said.
France’s central bank said Thursday that the gross domestic product probably declined 0.1 percent in the fourth quarter of 2012, an assessment unchanged from its previous estimate.
At the same time, data from the statistical office Insee indicated that there was some signs of recovery in the industrial sector as output rebounded in November from the previous month.
The dollar began Thursday’s session trading around the $1.3040 level against the Euro, but has since steadily declined, falling to over a one-week low of $1.3223.
France’s EU harmonized inflation weakened to the lowest level in thirty-four months in December, data released by statistical office Insee showed Thursday.
Inflation as per the harmonized index of consumer prices (HICP) eased to 1.5 percent in December from 1.6 percent in November, in line with market expectations. The latest figure was the lowest since February 2010, when prices moved up 1.4 percent.
On a monthly basis, the HICP increased 0.4 percent in December, which was in line with economists’ expectations. In November, prices had decreased 0.2 percent month-on-month.
The Bank of England kept its quantitative easing intact at the start of the year, as policymakers see little compelling case for another stimulus in the face of improving lending conditions.
Following its two-day meeting, the Monetary Policy Committee headed by Mervyn King left the size of its bond buying program unchanged at GBP 375 billion and the interest rates at record low 0.50 percent on Thursday.
The U.K. statistical authorities said the current calculation of the Retail Price Index should be continued without major changes so that it would not affect payments on inflation-linked bonds.
Jil Matheson, the National Statistician on Thursday said the RPI has significant value to index-linked bond holders. So the statistician recommended formulae used for the RPI should be kept unchanged and to develop a separate monthly inflation index called RPI-J to meet international standards.
The greenback traded around the $1.6000 level against the pound sterling Thursday morning, but has since fallen to over a 2-session low of $1.6125.
Construction activity in the U.K. will likely improve in 2013, and the sector is set to recover from last year’s slump which was marked by tough conditions, the latest construction market survey by the Royal Institution of Chartered Surveyors (RICS) showed Thursday.
Overall, the buck is little changed against the Japanese Yen on Thursday. The U.S. currency rose to a 3-day high of Y88.326, but has since eased back to around Y88.170.
Japan’s leading and coincident indices declined in November, preliminary data from the Cabinet Office showed Thursday.
The leading index, designed to measure the direction of the economy in the months ahead, dropped to 91.9 in November from 92.8 in October.
Likewise, the coincident index which measures the current economic activity slipped to 90.1 from 90.7 a month ago. The lagging index came in at 86.5, down from 86.8 in October.
With the data for the previous week downwardly revised, the Labor Department released a report on Thursday showing that first-time claims for U.S. unemployment benefits saw a modest increase in the week ended January 5th.
The report showed that initial jobless claims rose to 371,000, an increase of 4,000 from the previous week’s revised figure of 367,000. Economists had expected jobless claims to drop to 362,000 from the 372,000 originally reported for the previous week.
Wholesale inventories in the U.S. increased by more than anticipated in the month of November, according to a report released by the Commerce Department on Thursday, with the report also showing a substantial rebound by wholesale sales.
The report showed that wholesale inventories increased by 0.6 percent in November compared to economist estimates for a 0.3 percent increase. However, the Commerce Department also said that the increase in inventories in October was downwardly revised to 0.3 percent from 0.6 percent.