Overall: The dollar continued to strengthen overnight as S&P futures declined and as traders adjusted their positions ahead of the interest rate decisions from the ECB and BoE. The euro fell during the overnight session, but the pound traded somewhat cautious. The euro fell sharply after Trichet signaled further rate cuts were a possibility (during the press conference) but the higher-yielders gained during trade on Wall Street even as stocks plumbed new lows.
In U.S. economic news, the number of workers making claims for new unemployment benefits declined by 31,000 to 639,000 last week. Economists had expected to see 647,000 new claims. The four-week average, which aims to smooth volatility in the data, rose 2,000 to 641,750, the highest since October 1982. Non-farm productivity unexpectedly fell 0.4% in the fourth quarter of 2008 as nonfarm business output posted its steepest plunge in almost three decades. Still, productivity rose 2.8% on average last year, the highest in four years, despite what's been described as the worst financial crisis since the Great Depression. That's above the average 2.5% growth rate between 2000 and 2008.
The Euro (EUR/USD) fell at the start of the Asian session near the neutral pivot point (1.2590), but moved sideways until the pair moved lower after the London open. The pair declined after ECB president Trichet signaled that further rate cuts were possible, hitting an intra-day low on 1.2480, but rose thereafter even as stocks and crude oil declined sharply on the day.
The Euro-area GDP release showed that the economy contracted in the fourth quarter 1.5%. Q4 was the third consecutive quarter in which the economy contracted. Compared with the fourth quarter of 2007, the Euro-area GDP fell by 1.3%. Taken individually, the biggest economies from the Euro-area declined at a record pace in the last quarter.
The Pound (GBP/USD) declined almost as soon as London opened, as traders adjusted positions ahead of the BoE. The pair found a base at 07:00 EST and rose thereafter even as stocks declined sharply on the day.
In February, house prices continued to tumble in the U.K. by 2.3%, offsetting the gain seen in the month before. From one year ago, U.K. house prices have fallen by 17.7%, down to the same level as in 2004, while the price of an average house is now £160,327
The Aussie (AUD/USD) has been declining since about 15:00 EST on Wednesday, right along with the cash market and S&P futures. After hitting a peak at around 10:00 EST this morning the pair declined with U.S. equity markets, the only major to track stocks on the day.
Australia has posted a lower than expected trade balance for the month of January. In seasonally adjusted terms, the surplus was A$0.97 billion; this is a decrease from December’s A$0.42 billion which was also revised lower, from A$0.59 billion. The building approvals from Australia fell a seasonally adjusted 3.7 percent, month over month, in January. This was against expectations for the relatively small increase of 1.4 percent. The trend estimate for total dwellings approved has fallen 4.3 percent for the 14th consecutive month in January
The Cad (USD/CAD) retraced some of the declines seen in the last day of trading during the overnight session. The cad traded tonight on very light volume, but managed to advance 60 pips to the neutral pivot point (1.2800). The pair rose fairly steadily in N.Y. as crude advanced nearly 4% on the day.
The Swissy (USD/CHF) gained 90 pips since the new trading day started, and pared the decline seen just one day earlier. In the early part of the Asian session, the pair bounced off the 20-day simple moving average, an important swing area that has formed in the last few days. After rising for most of the overnight session, the pair reached a peak about an hour before Wall Street began trading and spent the rest of the day trading lower with U.S. stocks.
The Yen (Usd/Yen) struggled to break above the 99.50 area in the overnight session. Yesterday, the pair also topped around this area and could not manage to break anywhere higher. The pair began declining as DAX futures began trading, hitting a low on 98.20 about an hour after Wall Street began. From there, the pair traded sideways even as stocks declined sharply in New York.
Capital spending in Japan has fallen by 17.3 percent during the fourth quarter of 2008. This is a steeper drop than the 15.6 percent decrease which was expected by economists. Spending was cut in the last quarter at the fastest pace in the past ten years. This was caused by exports crashing to a halt as manufacturers earnings evaporated. This report is expected to be used to revise the GDP statement.