The dollar traded mostly lower on Thursday, falling to the euro and the pound after their respective central banks decided to keep their policies unchanged, and Mario Draghi was surprisingly upbeat in his assessment of the economy. The impact of data was overall neutral with the better-than-expected jobs data providing the antidote to the poor trade figures. New Jobless Claims fell to 331k from an upwardly revised 351k; Continuing Claims didn’t rise as much as had been expected, reaching only 2964k versus the 2998k expected. The Trade Balance wasn’t as high as expected, showing -38bn deficit versus the -36bn expected. Non-Farm Productivity rose by 3.2% versus 2.8% forecast. The focus now is on January Non-Farm Payrolls released tomorrow about which there has been much speculation. Some analysts are arguing the very bad weather could cause a low figure whilst others argue an unexpected spike is possible given large numbers of unemployed saw their benefits stopped in an effort to get them back to work. The current estimate is 175k from 74k previously.
The euro shot up on Thursday, spiking up to a high of 1.3618 (from a low of 1.3481) after Mario Draghi talked optimistically about the outlook for the euro-zone economy at his post ECB press-conference, surprising the majority of onlookers who had been expecting a negative assessment. The euro, which prior to the press conference had been trading near recent lows shot up after Draghi started speaking. The ECB council left the main refinancing rate at 0.25%, the deposit rate at 0.0% and the marginal lending facility at 0.75%. No non-standard measures were introduced either, such as LTROs, or stopping current LTRO repayments, or buying securitised debt from banks – all recently mentioned possibilities. Draghi said: all available instruments were examined but due to the “ complexity of the situation” no action was taken. The message of forward guidance remained the same: that policy would remain accommodative for an extended period. Draghi dismissed the threat of deflation and said unemployment had stabilised. He admitted risks remained tilted to the downside, however, and that the ECB was ready to take further decisive action if required.
The pound rose against most of its major counterparts on Thursday, although it fell against the euro which sky-rocketed following optimistic talk from Mario Draghi at the post ECB rate meeting press conference. The BOE held their own rate meeting on Thursday and, like the ECB kept policy unchanged, leaving the base lending rate at 0.5% and its stock of asset purchases at 375bn. This fell in line with expectations. Only a brief statement was released which stated that the committee would be publishing its economic projections in the inflation report on 12th February (next Wednesday). It is also expected that the BOE will announce changes to its forward guidance on the 12th as well, with the possibility that it might use a ‘dashboard approach’ with several indicators, rather than the current reliance on employment and inflation. Data out earlier on Thursday showed continued strong House Prices, which increased by 7.3% in Jan versus 7.2% expected and 1.1% m/m when 1.0% had been forecast.
The yen fell against all major currencies on Thursday, weakening against the euro and the pound after their respective central banks kept monetary policy unchanged , and Draghi gave an upbeat assessment of the economy. Emerging market (EM) concerns, which had been the fuel for recent yen gains, remained subdued lessening safe-haven flows. Recent data showing a rise in earnings of 0.8% in December were yen positive but not enough to reverse concerns about lack of wage growth, and its knock-on effect on inflation. Commentary from BOJ deputy governor and arch-dove Kikuo Iwata was upbeat, with the previous supporter of QE saying he didn’t think any more was required and the economy was on track to meet its 2% inflation target. He argued growth in developing economies would now provide the export markets for Japanese products, taking over from the dominant role provided by EM’s before.