The dollar has gained ground versus its major rivals on Thursday. The policy meetings held by the European Central Bank and the Bank of England concluded today and both resulted in further economic stimulus. The People’s Bank of China also announced an interest rate reduction on Thursday.
However, investors were disappointed that the ECB made no mention of further nonstandard measures, such as LTRO’s, or further bond purchases. The U.S. jobs report is due to be released Friday morning. After Thursday’s better than expected ADP private sector employment report and the lower than anticipated weekly jobless claims report, investors are optimistic.
The European Central Bank announced a historic interest rate cut on Thursday in an attempt to shore up the 17-nation economy that is slipping into recession. At its meeting in Frankfurt, the Governing Council led by ECB President Draghi reduced the main refinancing rate by 25 basis points to 0.75 percent. The move was in line with economists’ expectations.
Further, the central bank also lowered its deposit rate by 25 basis points to zero. The marginal lending facility rate was also slashed to 1.50 percent from 1.75 percent, implying a narrowing of the interest corridor.
“Inflationary pressure over the policy-relevant horizon has been dampened further as some of the previously identified downside risks to the euro area growth outlook have materialized,” Mario Draghi said in his introductory statement at the post-decision press conference in Frankfurt. “The underlying pace of monetary expansion remains subdued.”
Citing indicators, he said there was renewed weakening of growth in the second quarter and heightened uncertainty. “Looking beyond the short term we expect the euro area economy to recover gradually, although with momentum dampened by a number of factors,” he added. “The risks surrounding the economic outlook for the euro area continue to be on the downside.”
The dollar has extended yesterday’s gains versus the Euro and has reached a one-month high of $1.2363 on Thursday.
Germany’s construction sector continued to shrink in June due to the ongoing weakness in incoming new orders, Markit Economics said Thursday. Although the seasonally adjusted Construction Purchasing Managers’ Index rose to 46 from 44.7 in May, the reading suggests contraction in the sector.
Germany’s factory orders grew unexpectedly by 0.6 percent in May from a month ago, the Federal Ministry of Economy and Technology said Thursday. Economists were expecting orders to remain flat after easing 1.4 percent in April.
UK policymakers decided to relaunch monetary stimulus in hopes of giving the recession-hit economy a jump start. The Bank of England had temporarily halted their quantitative easing programme back in May, but with inflation in check and the European economy teetering, the nine-member Monetary Policy Committee decided to raise the size of its asset purchase plan by GBP 50 billion to GBP 375 billion.
At the end of two-day meeting, the committee today left the interest rate unchanged at 0.50 percent as widely expected by economist. The rate has been maintained at the current level since March 2009.
The greenback also extended its gains versus the pound sterling on Thursday, rising to a one-week high of $1.5499.
Bank of Japan Governor Masaaki Shirakawa on Thursday repeated that the crisis in Europe remained the biggest threat to Japan’s economic prospects. In a speech in Tokyo, he said close attention should be paid to developments in Europe and the impacts of the debt crisis that could have on Japan’s financial system. Shirakawa repeated BoJ’s view that the economy is expected to return to a moderate recovery path as domestic demand remains firm and overseas economies emerge from the deceleration phase.
The buck reached Y80.085 versus the Japanese Yen on Thursday, its highest level since June 25th, but has since eased back to around Y79.875.
New unemployment claims fell more than expected for the final week of June, according to figures released Thursday by the Labor Department. The DOL calculated that there were a seasonally adjusted 374,000 new claims for unemployment for the week ending June 30.
That marks a notable drop of 14,000 from the previous week’s revised figure of 388,000 and comes in well below the 386,000 level predicted by most economists. The previous week’s figure was revised up slightly from the 386,000 initially reported.
Private sector employment in the U.S. increased by much more than expected in the month of June, according to a report released by payroll processor Automatic Data Processing (ADP) on Thursday, with the data offsetting recent concerns about the strength of the labor market.
ADP said the private sector added 176,000 jobs in June following an upwardly revised increase of 136,000 jobs in May. Economists had expected private sector employment to increase by about 95,000 jobs compared to the increase of 133,000 jobs originally reported for the previous month.
While the Institute for Supply Management’s monthly report on activity in the service sector showed continued growth in the sector in the month of June, the pace of growth slowed by more than economists had been anticipating.
The ISM said its non-manufacturing index fell to 52.1 in June from 53.7 in May, although a reading above 50 indicates continued growth in the service sector. Economists had been expecting the index to edge down to 53.0.