The dollar rallied sharply against its major competitors on Thursday, after the European Central Bank unexpectedly reduced its interest rate. However, the U.S. currency has since given back most of those initial gains. U.S. GDP data came in better than expected, but investors may be playing it cautious ahead of Friday’s jobs report.
Economic activity in the U.S. grew by more than anticipated in the third quarter, according to a report released by the Commerce Department on Thursday. The report said U.S. gross domestic product rose by 2.8 percent in the third quarter compared to economist estimates for an increase of 2.0 percent.
While the growth reflects acceleration from the 2.5 percent increase in the second quarter, economists noted that inventory accumulation added 0.8 percentage points to the third quarter growth rate.
First-time claims for U.S. unemployment benefits fell for the fourth consecutive week in the week ended November 2nd, with claims coming in roughly in line with economist estimates. A report released by the Labor Department on Thursday said initial jobless claims fell to 336,000, a decrease of 9,000 from the previous week’s revised figure of 345,000.
Economists had been expecting jobless claims to dip to 335,000 from the 340,000 originally reported for the previous week.
The European Central Bank sprung a surprise on Thursday by cutting the key interest rate to a record low in November, yielding to intense market speculation for such a move, given the combination of low inflation, record unemployment and a stronger currency.
The Governing Council, led by ECB President Mario Draghi, cut the main refinancing rate by 25 basis points to record low 0.25 percent, following the rate-setting session in Frankfurt. Previously, the bank slashed the rate by a quarter-point in May, which was the first reduction in nine months.
The bank also cut the marginal lending facility rate by a quarter-point to 0.75 percent. The previous change was a 50 basis points cut in May. The zero deposit rate was left unchanged.
Eurozone interest rates were reduced on Thursday as the economy is likely to face a prolonged period of low inflation, but no deflation, the European Central Bank President Mario Draghi said on Thursday.
The dollar surged to nearly a 2-month high of $1.3295 against the Euro on Thursday, but has since eased back to around $1.3390.
Germany’s industrial production declined 0.9 percent in September from August, data from the Federal Ministry of Economics and Technology showed Thursday. Production was forecast to remain flat in September after rising by revised 1.6 percent in August.
German construction sector expanded for a sixth month running in October, driven by solid growth in work on commercial projects, a survey by Markit Economics revealed Thursday. The headline purchasing managers’ index, a measure of the construction sector performance, rose to 52.6 in October from 52.1 in September.
Spanish industrial production bounced back in September, ending 29 months of successive declines as the economy emerged from a prolonged recession in the third quarter, data from the statistical office INE revealed Thursday. On a calendar adjusted basis, production grew 1.4 percent year-on-year, following a 2.1 percent decline in the previous month. This was the first increase in output since February 2011.
The Bank of England kept its key rate at the current record low level as the bank had pledged not to raise rates until the jobless rate falls to 7 percent. Moreover, knock-out conditions of the forward guidance have not materialized so far in the economy.
The nine-member monetary policy committee governed by Mark Carney concluded the two-day rate setting meeting by retaining the key rate at 0.50 percent and the size of monetary stimulus at GBP 375 billion. The outcome of the meeting came in line with expectations.
The greenback climbed to an early high of $1.6009 against the pound sterling Thursday, but has since retreated to around $1.6065.
British economic growth moderated in the three months ending October, a monthly report from the National Institute of Economic and Social Research, or NIESR, showed Wednesday. The gross domestic product grew 0.7 percent in the three months ending in October after growth of 0.8 percent in the three months ending in September 2013, the think-tank said in its monthly GDP estimate.
The buck spiked to a month and a half high of Y99.401 against the Japanese Yen on Thursday, but has since pulled back to around Y98.550.
An indicator of the performance of the Japanese economy increased sharply in September, after falling in the previous month, preliminary data released by the Cabinet Office showed Thursday. The leading economic index, which is designed to measure changes in the direction of the economy, moved up to 109.5 in September from 106.8 in August. The September score was slightly above 109.4 economists had forecast. In July, the index was at 107.9.