Daily Forex Analysis by Finexo.com 09/04/2010

Past Events

• USD Unemployment Claims, out at 460K versus expected 434K, prior 442K (revised)
• GBP Halifax PMI, out at 1.1% versus expected 0.6%, prior -1.6% (revised)
• GBP Manufacturing Production, out at 1.3% versus expected 0.7%, prior -1.0% (revised)
• GBP Asset Purchase Facility, out at 200B as expected, prior 200B
• GBP Official Bank Rate, out at 0.5% as expected, prior 0.5%
• EUR Retail Sales, out at -0.6% versus expected 0.0%, prior -0.2% (revised)
• EUR Minimum Bid Rate, out at 1.0% as expected, prior 1.0%
• EUR ECB Press Conference

Upcoming Events

• USD Fed Chairman Ben Bernanke to speak in Washington (1230 GMT)
• CAD Employment Change (1100 GMT)
• CAD Unemployment Rate (1100 GMT)
• EUR ECB President Trichet to speak in Milan (1530 GMT)

Market Commentary

More Americans unexpectedly filed first time claims for jobless benefits last week, in part reflecting difficulty in seasonally adjusting the data ahead of the Easter holiday. Initial jobless applications increased by 18,000 to 460,000 in the week ended April 3rd, Labor Department figures showed yesterday. The week leading up to Easter and the two weeks that follow are traditionally a “volatile time” for claims, a Labor Department analyst said.

Last week the US Labor Department reported that payrolls rose by 162,000 in March, the biggest gain in three years. The unemployment rate was 9.7% for a third month. It has not increased since reaching a 26-year high of 10.1% in October.

Some companies may be reluctant to expand payrolls until they see sustained increases in sales as the US emerges from recession. Federal Reserve Chairman Ben Bernanke said yesterday that joblessness, home foreclosures and weak lending to small businesses pose challenges to the economy.

Yesterday the US Dollar fell 0.14% against the Euro to close at USD 1.3359. The US Dollar had climbed against the Euro during the previous four days. Against Sterling the US Dollar also dropped for the first time in three days, sliding 0.26% to close at USD 1.5273.

In the UK yesterday the Bank of England kept interest rates at a record low of 0.5% for the 13th consecutive month in its last decision before the upcoming general election. It also left its 200 billion-Pound asset purchasing program on hold.

The decision had been widely anticipated amid concerns that Britain’s recovery from a punishing 18-month long downturn remains fragile. The perilous state of the economy is expected to be a major factor in the general election scheduled for May 6th.

Both the ruling Labour Party and the main opposition Conservative Party are trying to convince voters that they have a clear plan to reduce the country’s massive budget deficit — but both also warn that Britons face a new age of austerity regardless of the election outcome.

Also in the UK yesterday, results of the latest Halifax survey showed that house prices rebounded in March after falling sharply in February. March house prices were up 1.1% on the month to stand up 5.2% on the year, following a revised 1.6% fall on the month in February. The 1.1% increase was the eighth monthly rise in house prices in the past nine months and the largest since November last year.

The 5.2% year-on-year rise was the largest since December 2007. House prices in the first quarter were up 0.6% on the fourth quarter. UK house prices were up 9.1% in March from their April 2009 trough, having fallen 23% from peak to trough.

Martin Ellis, Halifax’s housing economist, said increasing supply should curb house price inflation. “There are signs that an increase in the number of properties available for sale is beginning to reduce the imbalance between supply and demand. This should help to contain the upward pressure on house prices,” he said.

UK figures for manufacturing output bounced back sharply in February, taking annual growth to its highest level for two years, according to figures released by the National Statistics Office yesterday. Manufacturing output rose 1.3% on the month in February to stand 1.4% above levels a year earlier, the highest annual rise since February 2008.

Analysts had forecast a more moderate increase of 0.5% on the month and of 0.9% on the year. The National Statistics Office said that there was some evidence that strength in the February data represented a rebound from the fall in output seen in January due to the poor weather. In the three months to February, manufacturing output was up a healthy 0.8% compared with the previous three months, suggesting output is likely to add positively to GDP growth in the first quarter.

Yesterday saw Sterling post its ninth consecutive day of gains against the Euro. The Pound appreciated 0.15% to close the day’s trading at GBP 0.8745 to the Euro.

In Europe yesterday the European Central Bank announced that it would keep the Euro Zone interest rate at its record-low level of 1% for the eleventh month in a row. The decision was expected and comes as the ECB is scaling back its lending to banks aimed at stimulating the economy.

Speaking at the monthly press conference following the rate announcement ECB President Jean-Claude Trichet said the bank expected growth to be moderate for the rest of the year. Mr. Trichet said the bank’s interest rates were “appropriate” given moderate inflation and economic growth in the early months of the year. But he warned of a continued “environment of uncertainty”.

When asked for his views on the outlook for crisis-hit Greece, he insisted that the ECB supported the package of measures agreed by EU leaders at last month’s summit in Brussels. However he stressed that what was important was that the austerity program announced by the Greek government was implemented. “I have no reason to think it will not be”, he told reporters, but added: “We remain alert.”

Asked whether he thought Greece might default on its debt he said: “Taking all the information I have, a default is not an issue for Greece.” Concern has been growing in the markets about Greece’s situation and the level of support it will need, pushing its borrowing costs to record levels.

In other European news, Euro area retail sales unexpectedly fell 0.6% in February, more than had been expected by analysts and down 1.1% compared with the same time last year. The fall is being attributed to a lack of confidence by consumers following news that unemployment in the 16-nation Euro Zone had reached 10%. Consumer spending has failed to pick up despite low interest rates.

Written by Finexo.com