Forex:Deals affirmed but are conditional as based on market consolidation

The euro rose on Thursday, rebounding from a one-year low the previous day on hopes a bail-out plan for debt-stricken Greece would be finalized soon. Gains were limited, however, as details of the Greece package were thin, leaving uncertainties about the timing and implementation of any deal.

Germany's largest opposition party said it would move quickly to approve German participation, while European Union Economic and Monetary Affairs Commissioner Olli Rehn said the European Union should complete talks "within days”. However, Rehn said he still could not provide details of the deal, which he said were "conditional on fiscal consolidation."

Mr. Rehns speech he emphasis on “a multi annual program” has helped provide comfort to markets amid fears that the initial plan for a 45 billion euro package would only help meet Greece's borrowing needs through the current year. IMF officials have reportedly indicated the package could total between €100 billion to €120 billion.

Greek and other peripheral Euro-Zone bond markets rebounded amid the comments and also took relief from a well-received auction of Italian government debt, the first test of the credit markets by a southern euro-zone country since this week's downgrades of credit ratings for Greece, Portugal and Spain.

The International Monetary Fund and European Union are pressing Greece to take extra austerity measures that could yield more than €20 billion a year as a precondition for financial assistance. These new austerity terms, which could range from pension overhauls to wage cuts, come at the end of two weeks of talks between the visiting IMF negotiator, the European Central Bank and the European Commission. The IMF and the EU have said that they hope to reach an agreement with Greece on its budget deficit by the weekend, in order to pave the way for financial assistance for the debt-stricken nation.

During the European trading session in the forex online market, the EUR rose 0.4% against the USD to hit a high of $1.327771. It was comfortably above a one-year low of $1.311231 it hit on Wednesday after Standard & Poor's cut Spain's credit rating by one notch, a day after downgrades to both Greece and Portugal. The Euro closed at $1.32632, up 0.40% from its opening price of $1.32105.

Yesterday report showing that European confidence in the economic outlook improved to its highest level in two years as well as German unemployment fell signaling that the euro-area recovery is strengthening even as Greece’s fiscal crisis spreads across the region.
An index of executive and consumer sentiment in the 16 euro nations rose to 100.6 in April from a revised 97.9 in March, the European Commission in Brussels said yesterday; while in Germany, Germany's unemployment rate fell to 7.8% in April from 8.0% in March, exceeding market expectations that it would not be able to repeat last month’s move. The net change in unemployment for Germany was -68,000 in April, versus an expected -11,000 – marking the largest drop since February 2008. Germany’s unemployment levels are now at their lowest levels since January 2009.

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Portugal and Greece added the risk aversion due to downgrading

The Euro hit a new 12 month intraday low yesterday after Standard & Poor’s downgraded its debt rating on Spain, compounding sovereign debt fears just as a resolution to Greece’s aid package seemed imminent.

The Euro traded at as low as $1.51240 as concern that Europe’s deficit crisis may widen damped the appeal of assets in the 16-nation region. A cut to Spain’s credit rating yesterday, coming after downgrades this week to Portugal and Greece exasperated fears that the Euro Zones debt crisis is spreading. Standard & Poor’s cut Spain’s credit rating to AA from AA+ and said the outlook on the country’s debt is negative. This move comes just two days after the rating agency sliced Greece’s borrowings to junk and reduced Portugal’s to the third-lowest investment grade. The extra yield investors demand to hold Spain’s 10-year debt rather than German equivalents widened to 112.5 basis points this week, the most in more than a year.

Europe’s single currency fell for the third time in four days against the greenback after the IMF said in its Regional Economic Outlook report that the “main risk scenario” from Greece’s debt crisis is “one of worsening global risk aversion, should the jitters spill over to some of the larger European economies.” Moreover, as concerns about a domino effect spread officials said a joint IMF EU rescue package could now total up to €120billion ($150 billion) over three years – nearly three times the amount recently pledged – as the IMF urged reluctant German lawmakers to move quickly in approving support for immediate financial aid.

Investors are abandoning the euro at a rate not seen since the collapse of Lehman Brothers Holdings Inc. as Europe’s worsening fiscal crisis threatens to splinter the 16-nation currency union. After reaching a new 12-month low against the USD, the Euro managed to recover slightly in the North American trading session to close at $1.52003, down 0.29% from its opening price.
This morning, Germany will release its latest figures for the unemployment change. A significant drop in the number of unemployed people was reported last month – 31,000. Economists are optimistic this time, and predict another drop of 11,000. A better than expected number could provide some stabilizing relief for the falling Euro.

Britain’s currency, also affected as by news of the Spanish downgrade, tumbled to a low of $1.51240 yesterday. The GBP/USD recovered slightly to close at $1.52443, down 0.29% from its opening price in the forex online market. This morning, a report by the Nationwide Building Society showed that housing prices in U.K rose by 1.0% in April from March. According to Nationwide data, this marks the second consecutive monthly rise of 1.0% rise, leaves house prices up by 10.5% on an annual basis.

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Forex News: Greece Debt crisis extends upto Portugal

Greece’s debt crisis spread to Portugal after a pair of ratings downgrades on the two countries spooked investors, fueling a sell-off in markets across the globe while shattering Europe’s hopes on containing the crisis.

Greece became the first Euro Zone nation to have its credit rating reduced to “junk” by Standard & Poor’s, a move that will make now nearly impossible for Greece to borrow, dashing any remaining hopes of the debt-stricken nation’s recovery. Portugal, who like Greece is struggling to rein in its budget deficit, suffered a two notch downgrade. While this downgrade left its investment-grade intact, it severally raised concerns about the country’s possible tragic fate.

Following the news the Euro plunged a one year low against the U.S Dollar. The single currency fell 1.94% from its opening price of $1.34028, to hit $1.31429 in the forex online market.

News of the downgrades comes as investors were already concerned that the €45billion joint EU-IMF aid package would be delayed by an internal political struggle in Germany. Earlier this week, the German Chancellor Angela Merkel told reports that there will be no decision on aid for Greece until the International Monetary Fund works out a plan of cuts with the government in Athens. Merkel went on to say that Germany will assist Greece only after it agrees to take “tough” measures.

The Euro experienced losses across the board as fears that the Greece’s crisis had begun to spread to Portugal swept across the globe. The European currency approached a five week low against the Japanese Yen, falling 2.78% from its opening price of 125.847¥/€ to hit a low of 122.350¥/€.

The euro rebounded from a one-year low against the dollar on speculation the International Monetary Fund will provide more aid to Greece, easing concern the nation’s debt woes will spread through the region. The 16-nation common currency rose to $1.32164 in Asian sessions this morning, up 0.35% from yesterday’s close of $1.31709, after the Financial Times reported the International Monetary Fund may increase its financial assistance to Greece by €10 billion from the current €15 billion, citing unidentified bankers and officials in Washington.

European Central Bank President Jean-Claude Trichet and IMF Managing Director Dominique Strauss-Kahn will brief German parliamentary leaders in Berlin around noon today about aid for Greece, which has met with opposition in Europe’s biggest economy. The joint EU-IMF package would require Germany to provide the biggest individual loan to Greece.

A flare up of financial turmoil in Europe, caused by concerns that Greece and Portugal might default on debt, should reinforce the Fed's reluctance to close out a two-day meeting with any sign that might suggest U.S. monetary policy could soon be tightened. Later today, the U.S Federal Reserve will announce its policy decision concerning the interest rates (1915GMT).

The Fed cut benchmark overnight rates to near zero in December 2008 and in March last year promised "exceptionally low" rates for "an extended period," a vow it has renewed at every meeting since that one. While the world's biggest economy is crawling out of its deepest recession in decades, Fed officials have said the recovery remains wobbly and they have warned that the jobless rate is likely to remain uncomfortably high for a long time. Analysts predict that the Fed will opt to hold interests rates near zero.

Home prices in the U.S dipped for the fifth-straight month in February as many markets remained under pressure from foreclosures and high inventories. Meanwhile consumer confidence rose in April to its highest level since the financial struck in September 2008.

The S&P/Case-Shiller Index tracking home prices rose across 20 metropolitan areas fell 0.9% during the month of January as all but one city, San Diego, posted declines. Compared to a year earlier however, home prices rose nationwide for the first time since December 2006. Home prices in February were 30% below the peak reached in July 2006, indicating the industry that helped trigger the worst recession since the 1930s will take years to recover lost ground. A pickup in employment is needed to help stem the damage from mounting foreclosures that are restraining further gains in property values.

Confidence among U.S. consumers increased in April to the highest level since September 2008 as Americans became more upbeat about jobs, another report yesterday showed. The Conference Board’s index rose more than forecast, to 57.9 from 52.3 in March, according to the New York-based private research group. Consumer’s current assessment of the economy improved, while their expectations for the months ahead rose remarkably.

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Merkel need to see Greece tough measures to deal with deficit

The Euro slipped against all its major currency counterparts yesterday as uncertainty intensified over how and when Greece would get financial aid sought last week to avert a potential sovereign debt default. The spread between Greek and German 10-year government bond yields hit a new 12-year high of 679 basis points on Monday, indicating market concern over the implementation of the aid package and the conditions attached to it.

Comments from Germany, potentially the biggest contributor to any aid package, helped keep markets nervous after Greece on Friday requested an aid package drawn up by the European Union and International Monetary Fund be implemented. German Finance Minister Wolfgang Schaeuble said Germany was aiming to free up financial support for Greece before a May 19 deadline, but the opposition Social Democrats said they would not back an accelerated parliamentary process to approve the aid.

The single European currency retreated from the highest level in more than a week against the Japanese Yen on concern that the joint EU-IMF €45billion rescue package won’t be enough to stop the deficit crisis from spreading. After hitting 126.298 Yen, its highest price since April 16th, the Euro slipped to 125.042 Yen. The EUR/JPY closed at 125.842, down 0.13% from the day’s open.

The Euro’s losses extended across the board as it neared a three month low against the British Pound after German Chancellor Angela Merkel stated that she won’t release any emergency funds for Greece until the nation has a “sustainable” plan to reduce its shortfall. After plunging to a low of 0.86016, the EUR/GBP recovered to close at 0.86620, down 0.27% from the day’s opening price.

After hitting a daily low of $1.32901, the Euro recovered against the greenback to close yesterday at $1.34026, up 0.35% from its opening of $1.33561. However, in the Asian trading session this morning, the single European currency slid to hit a low of $1.33557.

The European Central Bank President Trichet will speak on multiple occasions this week, mostly while on his trip to the United States. Any comments about the Greek debt crisis or the state of the economies will shake the Euro. He will speak later today at a conference in Chicago (13:15 GMT) and later this evening (2315GMT) at the Kellog School of Management in Evanston. Trichet returns to Europe and will deliver a speech in Munich this Thursday.

In early trading yesterday, the British Pound extended its rally from late Friday after slipping to a four-day low versus the US Dollar of $1.52938 in the forex online market. Last week’s volatile trading session ended with a disappointing figure in Britain’s growth. The U.K. economy grew half as much as economists forecast in the first quarter as winter weather hampered expansion, underscoring the recovery’s fragility two weeks before the election. The Prelim GDP report showed a 0.2% increase from the last quarter of 2009, when a 0.4% expansion pushed Britain out of the recession.

Yesterday, the pound strengthened against the dollar for the first time in three days after a report showed U.K. house prices increased for a ninth consecutive month, underpinning signs the economic recovery is gaining traction. The Sterling advanced versus 14 of its 16 most-traded counterparts after Hometrack Ltd. said the average cost of a home increased 0.2% from March. The pound gained 0.5% to $1.5450 (as of 1:20 p.m. in London) and appreciated 0.9% to 86.24 pence per euro, after earlier reaching 86.07 pence, the strongest since Jan. 28. The Pound closed at $1.54691, up 0.62% from its opening price.

This week, few economic events are scheduled that will several affect the value of the Pound. Early this morning (930GMT), the British Banker’s Association will release the number of new mortgages that they approved for home purchases. The BBA represents major banks that make up around 60% of total UK mortgage lending. This figure is generally considered a leading indicator of housing market demand as most home purchases are financed with a mortgage, so it provides an excellent gauge of how many qualified buyers are entering the market. Last month monthly approvals reached a peak of 35.3K; a rise of 39.3K is expected now.

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Forex News: EUR still plunging over Greek bailout negotiations

“Europe and the members of the euro zone, are committed to a common currency and will defend it at any cost,” Greece’s Finance Minister George Papaconstantinou told reporters yesterday in Washington, following his meeting with the International Monetary Fund and World Bank. According to the Greek Prime Minister, Europe’s response to the Greek fiscal crisis shows that the bloc will do whatever is necessary to protect its unilateral currency.

Greece is currently negotiating the terms of a bailout worth as much as €45 billion this year as investors continue to doubt that that the tiny Mediterranean nation can finance itself after its budget deficit totaled 13.6% of gross domestic product last year. With Greece facing €8.5 billion of bonds maturing May 19, finance ministers are seeking a swift resolution of the talks.

Last Thursday, the Euro plunged to a new one year low of $1.32574 after a EuroStat report that Greece's budget deficit was larger than previously thought. Greece called for activation of the joint EU-IMF €45 billion ($60 billion) bailout fund this year in an unprecedented test of the Euro’s stability and European political cohesion. The appeal for help from the European Union and International Monetary Fund follows a rapid rise in borrowing costs to what Greek Prime Minister George Papandreou called unsustainable levels that would ruin all efforts to cut the budget deficit that is more than four times the EU limit. Greece’s request of the bailout fund comes one day after the yield on the country’s benchmark two-year note topped 11%, approaching that of Pakistan, and Moody’s Investors Service lowered Greece’s creditworthiness by one notch to A3, saying it was considering further cuts.

On Friday, the single currency managed to rally against the US Dollar, as German business confidence rose more than expected to hit a two year high in April. The Germany Ifo Climate, a survey based on 7,000 executives, jumped from a revised 98.2 to 101.6 (the market had expected 98.2) as the global economic recovery boosted export demand and warmer weather allowed workers back onto construction sites. The Euro's 12% drop in the past five months has made German exports more competitive outside the currency bloc and as a result, German manufacturing is expanding at a record pace. Moreover the arrival of spring weather has significantly boosted building activity and consumer spending.

Following the release of the better than expected report, the euro rose to trade at $1.3335 (at 11 a.m. in Frankfurt), up from 1.3230 that morning. Unfortunately, the Euro was unable to fully recover from Thursday's detrimental losses and fell for a second week in a row to close at $1.33837, up 0.88% from the day’s opening price but down 0.78% from the week’s opening price.

In the Asian forex online trading session this morning, the EUR/USD gained some ground as the pair hit a high of 1.33961. Analysts, predict that Euro will continue to fluctuate this week as investors await a solid plan on a financial lifeline for debt-stricken Greece. Later today, the European Central Bank president, Jean-Claude Trichet will speak (1730GMT).

Across the Channel, the U.K economy grew half as much as expected in the first quarter of this year, highlighting that Britain still continues to struggle with its recovery. Britain's Prelim GDP report showed a 0.2% increase from the last quarter of 2009, when a 0.4% expansion pushed Britain out of the recession. The pound tumbled 0.4% to $1.5318 following the report, from $1.5397. The British currency managed to recovery against its U.S counterpart, to close the week at $1.53749, up 0.05% from the day’s opening price. The EUR/USD closed at 0.87027, down 0.82% from the day’s opening price of 0.86318.

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Trend taking U-turn as major currencies struggling while CAD gaining heights

Greece is currently negotiating the details of an emergency joint rescue package from the euro zone and International Monetary Fund.

The Greek government has said it wants to reduce the deficit to 5.6% of GDP in 2011 and 2.8% of GDP in 2012. But spending cutbacks measures being introduced by Athens to restore its finances are being resisted. Yesterday tens of thousands of Greek civil servants staged a 24-hour strike in protest against the austerity measures.
The Bank of Canada yesterday continued to keep financial markets guessing about when policy rate increases may begin, but said their time has come. Likely dates are June 1st or July 20th for the first of a series of increases.

Canada’s dollar traded near a 22- month high against its US counterpart in the forex online market as the central bank signaled an increase in interest rates and reiterated that the need for economic stimulus is fading. The currency hit a high of CAD 0.99606 before dropping back to close just below parity at CAD 1.00061.

The Bank only provided detail in a Monetary Policy Report to outlines given Tuesday when it maintained the year-long rock-bottom overnight rate target at 0.25%. It said the need for such extraordinary stimulus is over and it is time "to begin to lessen the degree of monetary stimulus." However, the timing and size of rate increases "will depend on the outlook for economic activity and inflation." And here, on economic activity and recovery from recession, the Report is laced through with cautions.

Inflation is expected to remain anchored at around the 2% target through 2012, with the Bank evidently little concerned about it. Looking at growth, though there was a strong 5.8% recovery in the first quarter of this year, and 3.8% expected GDP increase in the present quarter, this recovery is "front-loaded," the Bank says. Growth will diminish to 3.5% in the second half and more rapidly in 2011, down to just +1.9% in the two final quarters of next year.

From now on, Canadian growth "will revert more quickly to trend," in the Bank's assessment. From the present second quarter this year through all of 2011, growth slows because policy stimulus measures had brought forward "considerably more expenditures" late last year and early this year than expected. Moreover, the Bank expects "a somewhat weaker outlook for US economic growth starting in the second half of 2010." Another drag is "the higher assumed level for the Canadian dollar."
The Bank bases its assessments in part on a Canadian dollar averaging 99 cents against the US dollar over its projection period (through 2012). The Canadian dollar was at parity with the US dollar Wednesday.

On an average annual basis, Canadian GDP is expected by the Bank to grow by 3.7% this year, against just 2.9% expected in the January Monetary Policy Report. Then, growth slows gradually to 3.1% in 2011 (3.5% expected last January), and down to 1.9% in 2012.

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Unclear majority in UK Parliament pushing difficulties to manage budget deficit

Yesterday the pound rose against both the euro and the US dollar as UK claimant counts fell more than economists forecast in March, giving a boost to Prime Minister Gordon Brown as he fights the tightest UK general election for more than 30 years. The currency gained 0.31% against the US dollar to close at GBP 1.54081 in the forex online market. It rose by 0.66% against the euro to close at GBP 0.86861.

The number of people collecting jobless benefits fell 32,900 from February to 1.54 million, the Office for National Statistics said yesterday. A drop of 10,000 had been expected. In February, the number of jobless claims fell by 40,100 instead of the 32,300 drop originally reported. The decline was the largest since June 1997. In March, the claimant count rate fell to 4.8%, the lowest since June last year, from 4.9%.

A separate measure of unemployment climbed to a 16-year high. The 8% unemployment rate, up from 7.8% in the previous period, compares with 9.7% in the US and 10% in the 16-nation euro zone.

Polls published Tuesday showed Labour slipping into third place after a surge in support for the Liberal Democrats following the first debate on April 15th. The results mean Labour could win the most seats in Parliament and remain in power with the support of the Liberal Democrats.
Sterling has been weakened by market speculation that the general election may produce no clear majority in Parliament. A minority government would have difficulty pushing through measures to tackle the budget deficit, which currently rivals that of Greece, at almost 12% of GDP.

The report may fuel speculation that the Bank of England will have to raise interest rates at a faster pace than previously thought as inflation climbed to 3.4% last month. Some central bank officials showed concern at the prospect of a prolonged bout of faster inflation when they met earlier this month, according to the minutes of their meeting published yesterday. The central bank has kept its interest rate at 0.5% since March 2009 to bolster growth.

U.K. annual consumer-price growth accelerated to 3.4% last month, according to data released on Tuesday, pushing close to the 14-month high of 3.5% reached in January. The Bank of England has a mandate to target inflation at 2% and keep it within 1 percentage point of that goal.

Bank of England officials, who are trying to balance fostering the economic recovery and the threat of accelerating inflation, have suspended comment on policy before the May 6th general election as Prime Minister Gordon Brown tries to win over voters on his record of managing the economy.

In Europe yesterday the Greek government's cost of borrowing hit a new high as talks on the rescue plan began. The interest rate on 10-year government bonds hit 8.3% - the highest level since the euro was introduced. Rates rose as it became clear that talks over the aid package may not be finished until days before a multi-billion-euro loan is due for repayment.

Many observers now feel it will be a question of when not if, Greece needs the aid.
Greece's finance ministry said the talks with the European Commission and the IMF would take about two weeks, with a joint text expected to be issued on around May 15th. On May 19th, Greece is due to repay investors an 8.5 billion euro bond.

In a statement on Tuesday, Greece's finance ministry, said: "The discussions concern a three-year program of economic policies... which can be supported with financial assistance from euro zone members and the IMF should Greek authorities decide to request the activation of the mechanism."

The talks, will discuss the precise terms, conditions, and interest rates that would apply if Greece asks for the aid. If all sides can agree to the terms required it should clear the way to a quick payout of up to 45 billion euro on offer from the EU and IMF.

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“Conditional Commitment” shifted economic outlook, no assurance of settled trade

Yesterday's announcement that the lending rate would remain at a record low of 0.25% contained a phrase about a “conditional commitment” to keep it unchanged until July unless the inflation outlook shifted. The bank said inflation will be “slightly higher” than its 2% target over the next year, and increased its 2010 economic growth forecast to 3.7% from 2.9%.

“With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus,” the central bank, led by Governor Mark Carney, said. “The extent and timing will depend on the outlook for economic activity and inflation.”

The Canadian Dollar jumped 1.6% against its American counterpart as the new language suggested the bank may increase rates as early as its next announcement on June 1. The Canadian Dollar closed the day trading above parity with the US Dollar at CAD 0.99792.

USD/CAD Chart

In Australia concern that the current mining boom will stoke inflation was a key reason the central bank raised borrowing costs toward “more normal levels” two weeks ago according to the minutes of the meeting of the Monetary Policy Committee released yesterday.

Governor Glenn Stevens has led the world in raising borrowing costs, after raising the overnight cash rate this month by a quarter percentage point to 4.25%, the fifth move in six meetings. The bank is signaling further increases in borrowing costs as the economy’s expansion accelerates, spurred by this year’s 50% jump in the spot price for iron ore.

GDP grew in the fourth quarter at the fastest pace in almost two years, rising 0.9% from the previous three months. The economy expanded 2.7% from a year earlier.

“On the question of timing, the fact that the prospective rise in the terms of trade was now likely to be noticeably stronger than had been expected was a factor suggesting that it might be prudent not to delay adjustment,” central bank officials said in the minutes. By contrast, central banks in Europe, the UK and the US have left borrowing costs close to or at record lows.

Yesterday in the forex online market the Australian Dollar saw a drop against its American counterpart for the third day, it fell 0.64% to close at AUD 0.93116.

In the commodities market Gold prices steadied above two-week lows yesterday but investors remained cautious about potential fallout from fraud charges against Goldman Sachs and the currency volatility on Greece's debt problems. On Monday, investors took the opportunity to cash in profits on gold, which has rallied about $100 since early February, pushing it down to a two-week low.

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Improved Housing signaled widened recovery but consumer confidence slacked

US Housing starts climbed to an annual rate of 626,000 last month, up 1.6% from February’s 616,000 pace, according to Commerce Department figures released Friday in Washington. Building permits, an indicator of future construction, climbed to the highest level since October 2008. An improvement in the housing market, after a crash that contributed to the deepest recession since World War II ended signals a broadening of the economic recovery.

New-home construction rose 20% in March from the same month last year. Permits were up 34% in the 12 months ended in March. Construction of single-family houses decreased 0.9% to a 531,000 rate in March, while permits increased 5.6%. Work on multifamily homes, such as townhouses and apartment buildings, climbed 19% to an annual rate of 95,000. The increase in starts was concentrated in the South. New construction fell in the rest of the country.

A separate report showed consumer confidence unexpectedly slumped in April, indicating Americans are worried the expansion will be too slow to bolster the labor market. The Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly dropped to 69.5 this month from a final reading of 73.6 in March. The gauge was projected to rise to 75.

A measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy big-ticket items like cars, dropped to the lowest level this year. The index of expectations six months from now, which more closely projects the direction of consumer spending, posted its weakest reading since March 2009.

Stocks fell on Friday, halting a six-day rally, after the Securities and Exchange Commission charged Goldman Sachs Group Inc. with fraud. The Standard & Poor’s 500 Index declined 1.6% to close at 1,192.13. As a result Friday saw the US Dollar climb against the Euro for the second day, the Dollar gained 0.50% to close at EUR 1.35011. In the Forex online market the US Dollar also climbed against the Pound for the second day in a row, appreciating 0.65% to close at GBP 1.53607.

Gold was steady on Friday, as safe-haven buying related to worries about Greece's debt crisis helped the metal defy pressure from a rising U.S. Dollar.

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Sterling appreciated on leading of Conservative party

The Euro snapped five days of gains against the greenback as concerns begin to grow that the European Union’s latest rescue plan for Greece- a €45billion bailout package – won’t be enough to restore the single currencies value. The European Union’s single currency fell sharply against all but 2 of its 16 most traded currency counterparts, as the extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds rose above 400 basis points for the first time since Greece’s bailout package was announced last Sunday. The EUR/USD hit a fresh weekly low of $1.3515.

The yield on Greece’s 10-year notes advanced 0.02 percentage point to 7.09% on concern Greece’s won’t get the fund it needs to fund a deficit that is 12.9% of gross domestic product, the biggest in the Euro’s history. The Parliaments of Germany, France and Ireland must first vote on whether to contribute their share of the EU loans.

This morning (1000GMT), Eurostate will release the annual Consumer Price Index for the entire continent. The market expects that the annual adjusted inflation will continue to increase at 1.5%, and that core CPI is expected to be revised from 0.8% to 0.9% - however, only a substantially rise in this figure will push the ECB to contemplate a rate hike.

The British Pound rose 0.6% to 87.77 pence against the euro after a survey showed the Conservative Party has extended its lead over the reigning Labour Party, easing concerns that next month’s election won’t produce a clear winner. The Sterling appreciated for a second day in a row against the single European currency after Britain’s Daily Telegraph published a poll showing that the Conservative party was in the lead with 43% support rate, compared to the Labour party’s 31% support. This poll signals that the U.K turbulent political situation is beginning to stabilize, which, according to analysts, is particular good news for the country’s currency which has recently suffered on concerns that U.K will not have a majority government following the next election. While early in the day during the European trading session, the pound dipped as low as $1.53840. However, the British currency managed recover during the U.S trading session, to reach a high of $1.5509. The GBP/USD closed the day at $1.55002 in the forex online market.

Across the Atlantic, the number of Americans filing claims for jobless benefits unexpectedly increased last week, indicating the improvement in the labor market will take time to unfold. Labor Department figures showed yesterday that Initial jobless applications rose by 24,000 in the week ended April 10; however a Labor Department spokesman said the rise in claims was due more to administrative factors reflecting volatility around Easter than economic reasons. None the less, the number of jobless names passed the market predicted vale of 439K, to reach 484K – the highest level since February 20th. Reluctances among some companies to hire is among one of the biggest challenges facing the economy as it recovers from what is considered the worst recession since the Great Depression. Employment gains are needed to help stimulate consumer spending, which accounts for about 70% of the economy. This disappointing figure comes one day after Fed Chairman Ben S. Bernanke told congress that high unemployment and weak construction are among the “significant restraints” on the pace of growth. However despite a worse than expected result, the U.S Dollar was up against the euro following the release of the joblessness claims, with the EUR/USD shedding 0.82% to reach 1.3441.

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Forex News: Extension of Low rates destabilized USD

The U.S dollar suffered losses against its major counterparts yesterday as a bigger-than-expected increase in U.S. retail sales last month spurred demand for riskier assets and the Federal Reserve Chairman repeated that interest rates will remain low for an “extended period”.

U.S retail sales rose 1.6% in March, marking the fifth gain in the past six months. Yesterday the U.S Census Bureau reported that sales totaled $363.2 billion, as demand increased for autos, building materials and new clothes. Excluding autos and trucks, core retail sales for March rose slightly more than expected- increasing 0.6% to $300.5billion. At the same time as the release of the retail sales report, the U.S Bureau of Labor Statistics released the Consumer Price Index (CPI) for March. While CPI was in line with market expectations of a 0.1%, the Core rate (excluding food and fuel) held steady after rising 0.1% in February- reflecting cheaper rents and clothing. Following the release of these reports, the USD increased by its largest amount versus the Japanese Yen in more than a week. The greenback appreciated as much as 0.6% to 93.72, resulting in the pairs biggest intra day gain since April 2nd. Moreover, following the release of these reports, the EUR/USD tumbled below the 1.3600 mark, hitting a fresh intra-day low of 1.3595. However, shortly after, the USD reversed all of these prior gains, declining 0.3% to reach $1.3658 per euro.

The Greenback continued to fall throughout the day, nearing its weakest level in almost a month versus the Euro as Federal Reserve Chairman Ben S. Bernanke testified to the Joint Economic Committee that policy makers have “stated clearly” that interest rates will be very low for an “extended period,” contingent on low inflation and other economic trends. Yesterday Bernanke said the U.S. expansion will remain moderate as the economy contends with weak construction spending and high unemployment. “On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters,” Bernanke said when he testified in front of on Capitol Hill. He went on to say that “significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments.” Currently U.S. central bankers are debating how and when to pull back monetary stimulus as the economy recovers from the worst slump since the Great Depression. The Fed chairman’s remarks didn’t include a discussion of the path of interest rates, and his outlook doesn’t suggest officials are ready to alter their guidance that rates will remain low “for an extended period”. Policy makers have held the benchmark interest rate at zero to 0.25% since December 2008. Fed officials will next meet on April 27th and 28th. The Dollar Index traded near a four-week low on prospects that Fed officials will reiterate they expect to keep interest rates near zero. The index, which tracks the dollar against the currencies of six major U.S. trading partners, bought 80.250 from 80.190 yesterday when it declined to 80.031, the lowest level since March 18.

Yesterday evening the U.S Federal Reserve released the Beige Book – a compilation of anecdotal evidence on economic conditions from each of the twelve Fed districts regarding local and economic conditions that covers approximately the six week period from the end of February through early April. According to the Beige Book eleven of the twelve Fed districts experienced growth since the last report. The St. Louis district was the lone exception, as it reported "softened" economic conditions. The U.S Dollar remained steady after the release of the Federal Reserve Beige Book with the EUR/USD holding steady above 1.3650; the GBP/USD traded above 1.5460. USD/JPY managed to rise to 93.20 from 93.00.

In the forex online market the USD closed the day down 0.30% against the Euro at $1.36541, down 0.54% against the GBP at $1.54695 and down 0.14% against the Yen at 93.181Y/USD.

Early this afternoon, the Department of Labor will release the number of unemployment claims for the week of April 5th. While last week saw disappointing rise to 460K, breaking the previous few week’s trend of steady improvement, this week the market predicts that the number of jobless claims will fall back down to 439K. Also out this afternoon, the U.S Department of Treasury will release the February’s TIC Long-Term Purchases – a report that represents the difference in value between foreign long-term securities purchased by US citizens and US long-term securities purchased by foreigners during the reported period. After leaping $126.8billion three months ago, this figure has been steadily increasing – jumping $19.1billion last month. This time around, the market predicts that the TIC Long-Term Purchases will increase by $39.2billion. The U.S’s numerous reports today will end with the Philly Fed Manufacturing Index (1500GMT). This important gauge of production has been on the rise in the past three months, ticking up to 18.9 points last time. It’s now predicted to take the next step and rise to 20.3 points (a level above 0.0 indicates improving conditions, below indicates worsening conditions).

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Events Testifying Economic Outlook

It is a very busy day for the United States, as the world’s leading economic nation is set to release two sets of very important figures, the monthly CPI and monthly Retail Sales.

At half past one this afternoon, the Census Bureau will release Retail Sales and Core Retail Sales for March. Economists predict retail sales will increase by as much as 1.1%, the biggest increase in four months as better weather and hiring pick up.

The market also predicts that core retail sales will increase by 0.5%. Published at the same time as retail sales, the Bureau of Labor Statistics will release the CPI and core CPI for March. Inflation is the key to raising the interest rate, and boosting the value of a currency; however, economists predict that CPI will increase by 0.1%, after remaining unchanged last time.

Core CPI, which is closely watch by the Fed, is predicted to increase by 0.1%- exactly like last month.
Later today, Fed Chairman Ben Bernanke will testify before the Joint Economic Committee on Capitol Hill. Last night, Bernanke addressed the National Bankers Association. While the Fed Chairman did not comment on the current economic conditions or on the Fed’s interest-rate policy in yesterday’s speech, today he is expected to discuss his economic outlook for the U.S, and explain why he is unwilling to raise the interest rates.

Yesterday, the bureau of Economic Analysis reported that the U.S trade deficit widened in February to $39.7 billion further adding to evidence of a rebound in the country’s economic growth and effect on forex online outputs. The trade gap, which surpassed market expectations of $38.5billion, increased 7.4% from a revised $37billion in January.

Imports climbed 1.7% as Americans bought more computers and televisions abroad, while exports rose to its highest level since October 2008. The need to replenish depleted inventories and gains in consumer spending mean purchases of goods and services from overseas will keep growing in coming months. Exports will probably also advance as global growth accelerates, giving companies across the board a boost.

Also out yesterday, the Bureau of Labor Statistics reported prices of goods imported into the U.S rose less than anticipated in March, indicating few signs of building inflation pressures from abroad. While markets had expected a 0.9% increase, the report showed a 0.7% increase in the import-price index, which follows a revised 0.2% drop in February.

Following the release of the data, the U.S. dollar was down against the Yen, with USD/JPY trading at 92.87, down 0.41% prior to the release. The USD also weakened against the Euro, falling to $1.3613.

Across the border, Canada posted its fifth straight trade surplus in February, the longest series of reported surpluses since November 2008, adding to yet piece of evidence supporting a growing economic recovery. Yesterday Canada’s balance of goods beat market expectations as Stats Canada reported a monthly trade surplus of C$1.40 billion ($1.39 billion), the largest surplus since October 2008. Despite a rising Canadian Dollar, exports increased 2.8% in February to C$34, led by a 7.2% gain in industrial goods and automatic products. Imports rose 0.9% to C$32.6 billion.

However, despite this positive news, the Loonie was little changed at C$1.0033 per U.S. dollar following the report.

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Forex News: Past Trading underpinning for Future

The Euro strengthened yesterday to its highest level in more than three weeks versus the U.S Dollar after news broke that Greece would be receiving an international rescue package worth as much as €45 billion ($61 billion) to help it avoid a default. Following the announcement of the of the “rescue plan” the single currency rose to $1.36906, appreciating as much as 1.4%, its biggest gain since last September. The Euro’s gain, which was its third increase in the past three days, sent the Dollar Index tumbling 1.3% to its lowest level since March 18th.

The 16-nation Euro-Zone finance ministers reported that they would offer Greece €30 billion in three-year loans in 2010 at about 5% interest. An additional €15 billion would come from the International Monetary Fund, resulting in what could possibly be the largest multilateral financial rescue ever attempted. The Greek official said the government would decide within a few days whether to ask for the aid, depending on whether market interest rates subside. For the time being, Athens will try and refinance its public debt on the bond market. This week, the Greek government will hold another bond auction that will surely be a test if the Euro Zone’s recent bailout plan has restored faith in the Greek bonds.

By yesterday’ close the single European currency has retreated from its near three week high against the USD as Greece prepares to sell €1.2Billion in 26 and 52 week bills. The Euro closed at $1.35924, down 0.71% from the day’s high in the forex online market.

The Japanese Yen rose, ending three days of losses versus the EUR, on speculation demand for Greece’s short-term debt will be weak at an auction today. Japan’s currency appreciated versus all 16 major counterparts after Asian stocks dropped, weakening demand for riskier investments. After closing yesterday at 126.119, the EUR/JPY continued to fall throughout this morning’s trading session, touching on a low of 125.690. Similarly, the USD/JPY fell during this morning’s Asian session- tumbling as much as 0.64% from yesterday’s closing price of 93.161, to hit a session low of 92.563.

Yesterday, the U.S posted a budget deficit for a record 18th straight month in March, reflecting gains in government spending to bolster the economy. The excess of spending over revenue declined to $65.4 billion last month, compared with the $220.9 billion reported last month, according to Treasury Department figures released yesterday in Washington. A deficit that’s forecast to reach a record $1.6 trillion this fiscal year illustrates the challenges facing President Barack Obama and Congress as they struggle to stimulate the recovery while keeping the budget gap manageable. Deterioration in the government’s balance sheet in coming years raises the risk of higher interest rates. Tonight, U.S Fed Chairman Ben Bernanke will speak. He will continue to speak tomorrow at the Joint Economic Committee where he will lay out his economic outlook.

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Forex recouping the market trends

The Euro surged to the highest level in more than three weeks against the U.S Dollar after European governments offered Greece a rescue package worth as much as €45Bn ($61bn) at below-market interest rates.

Finance Ministers of the 16-nation single currency bloc have agreed to offer as much as €30bn in three year loans, at around 5% interest. This is much lower than current borrowing costs facing the debt-stricken nation, with the yield on Greek government debt rising to a record high of 7.5% last Thursday. The aid package also involves the International Monetary Fund, which will provide an additional €15bn. "The Eurogroup is confident that the determined efforts of the Greek authorities and of its European partners will allow to overcome the fiscal and structural challenges of the Greek economy," an E.U. statement said.

Following the release of the news in the forex online market, the EUR rose 1.2% to strike a high of $1.36906, the highest price for the single currency since March 18th. This unexpected jump comes a few days after the single European currency dropped to within one cent of an 11-month low against the greenback, last Thursday. It rose 1.1%, the most since March 31, to 127.19 yen. The Euro also managed to regain all of last week’s losses against the British Pound. Following the news of a “Greek Bailout”, the EUR/GBP appreciated 0.50%- jumping from last Friday’s closing price of 0.87802 to a high of 0.88241, this morning.

The E.U. decision follows a nightmare week for the Greek administration, which saw borrowing costs soaring to a record high, while international ratings agency Fitch lowered the country's credit rating on Friday to 'BBB-' from 'BBB+' with a negative outlook.

For a second straight week, the British Pound climbed against the U.S dollar, as U.K producer prices jumped in March by more than the market has predicted, in the largest increase for since November 2008. PPI Input soared a record 3.6% between February and March, versus an expected increase of 0.6%, boosted by the rising cost of petroleum products. Britain’s Office of National Statistics also reported that the PPI Output increased above expectations, rising 0.9% for the previous month, and 5% from a year earlier. This monthly rise was more than double the market forecasted increase of 0.4%, adding signs that Britain’s economic recovery is gathering speed. The GBP closed on Friday at $1.53692, up 0.598% from the day’s opening price of 1.52778, and up 0.68% from the week’s opening price of $1.52654. In this morning Asian session, the GBP/USD extended above the 1.54000 mark, to hit a 7-week high of 1.54833, before pulling back to the 1.5435 area.

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Forex Friday Interpretations

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 in the forex online market. 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.

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Joblessness, Home foreclosure, Weak lending; 3 factors troubling the US Economy

In the US yesterday Federal Reserve Chairman Ben Bernanke said joblessness, home foreclosures and weak lending to small businesses pose challenges to the economy as it recovers from the worst recession since the 1930s.

“We are far from being out of the woods,” Bernanke said yesterday in a speech in Dallas. While the financial crisis has abated and economic growth will probably reduce unemployment over the next year, the U.S. faces hurdles including the lack of a sustained rebound in housing, a “troubled” commercial real estate market and “very weak” hiring, he said.

The remarks reflect concerns by Fed officials at their meeting last month that the job market and tight credit would restrain consumer spending. At the meeting, Bernanke and his colleague's reiterated interest rates will stay very low for an “extended period.” While he didn’t repeat that in yesterday's speech he did say the Fed’s “stimulative” rates will aid growth.

The US Dollar climbed against both the Euro and Sterling in the forex online market yesterday. Against the Euro it posted its third day of gains, climbing 0.41% to close at USD 1.3344. It climbed for the second day against the Pound, gaining 0.20% overall to close at USD 1.5239.

In Europe revised figures have shown that the economy failed to grow at all in the final quarter of 2009 as companies cut spending more than previously expected. The European Union's statistics office said that the quarter-on-quarter growth in the three months to December had proved to be zero. This was revised down from a previously reported 0.1%, according to Eurostat.

GDP in the 16-nation Euro Zone remained unchanged compared with the third quarter when it rose 0.4%. Year on year the economy of the 16 countries using the Euro contracted by 2.2%, more than the previously expected 2.1%.

The European economy is now showing signs of rebounding from its end-of-year relapse as the global recovery prompts companies to step up investment levels. While unemployment is at an 11-year high, economic confidence improved in March and the region’s services and manufacturing growth accelerated to the fastest pace since August 2007.

A separate report yesterday showed that German factory orders held steady in February after a surge in January as an increase in foreign demand for basic goods and machinery countered a drop in domestic orders. Orders, adjusted for seasonal swings and inflation, were unchanged from January, when they jumped 5.1%, according to the Economy Ministry in Berlin. Economists had forecast a 0.5% decline for February.

Orders from outside the 16-nation Euro area increased 2.9% in February from the previous month, driven by a 5% surge in basic goods orders and a 2.4% gain in demand for investment goods, yesterdays report showed. Domestic orders fell 1.9% from January. January’s overall orders increase was revised up from an initially reported 4.3% gain. The data, combined with solid sentiment indicators, suggest the recovery in the manufacturing industry will continue.

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Forex News: Aussie Gained against USD with RBA rate benchmark setting

In the UK the construction sector expanded in March for the first time in more than two years, led by a sharp rise in new orders in the housing and commercial sectors. The Chartered Institute of Purchasing and Supply/Markit construction PMI index jumped to 53.1 last month from 48.5 in February - the first reading above the 50 level that divides growth from contraction since February 2008.

Incoming new orders increased during March for the first time in four months and only the second time in the past two years. However, construction firms continued to shed jobs in March and concern over cutbacks in government spending meant they were less optimistic than in February.

"Though it's great to see the UK construction sector turn the corner after two years of relentless contraction, it's still very early days," said David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply. "The recession hit construction the hardest and because the industry is operating from such a low base, this upturn may be short-lived."

Of the three subsectors, house-building showed the strongest rise in activity, expanding for a seventh consecutive month. Commercial activity reported growth for the first time since February 2008. The civil engineering sub-sector, which is typically more reliant on public spending, contracted. Construction accounts for around 6% of Britain's economic output. In the first quarter as a whole, British construction activity was broadly unchanged, suggesting the sector is no longer acting as a drag on GDP.

Early tomorrow the UK manufacturing production PMI will be released. This indicator dropped by 0.9% last month, the first drop in five months, hurting the Pound. A correction is predicted this time – a rise of 0.7%. Note that manufacturing is 80% of industrial production which is published at the same time, that figure is expected to rise by 0.5%.

This week's major announcement for the Pound is the rate decision; the announcement will be made tomorrow at 11.45 GMT. The rate is expected to remain unchanged at 0.5%. The Asset Purchase Facility is also expected to remain unchanged.

In the forex online market yesterday against the US Dollar Pound gained 0.18% to close trading at GBP 1.5241.

American unemployment claims will also be published tomorrow at 12:30 GMT. Yet another drop in the weekly jobless claims is due. After reaching 439K last week, they’re predicted to drop to 432K, supporting more job gains in the next Non Farm Payrolls.

Finally yesterday Australia’s central bank raised its benchmark interest rate to 4.25% and signaled further increases, dismissing warnings that higher borrowing costs are already eroding consumer spending. Governor Glenn Stevens boosted the overnight cash rate target from 4%, the Reserve Bank of Australia said in a statement in Sydney yesterday. The Aussie gained 0.74% against the US Dollar following the announcement, jumping from AUD 0.9207 to AUD 0.9276.

Stevens was the first G-20 policy maker to raise borrowing costs twice this year. By contrast, the U.S. Federal Reserve Chairman Ben S. Bernanke said last month that the world’s biggest economy “continues to require the support of accommodative monetary policies.” The Fed has kept its benchmark rate close to zero since late 2008 and the European Central Bank’s rate is at a record low of 1%.

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Forex News: The Loonie moves closer to parity

US service industries expanded in March at the fastest pace since May 2006 indicating that the recovery in the US economy has spread beyond the manufacturing sector and is creating jobs. The Institute for Supply Management's index of non-manufacturing businesses, which comprise almost 90% of the economy, rose to 55.4, a bigger jump than expected and up from 53.0 the previous month. The pace of orders to service industries rose to the highest level since 2005, while backlogs were the highest since August 2007, indicating companies were having trouble meeting demand.

On Friday the US Labor Department said that employers increased payrolls by 162,000 workers last month, the third gain in five months and the largest since March 2007, indicating that companies are increasingly confident regarding economic recovery. Sustained employment gains would boost incomes leading to increased consumer spending which accounts for about 70% of the economy. James O Sullivan, chief economist at MF Global Ltd said "the recovery is looking increasingly self sustaining".

Also yesterday a report by the National Association of Realtors showed that pending home sales in February jumped the most since 2001. The index of purchase agreements, or pending home sales, rose to 8.2%, the second biggest gain on record and the largest since October 2001. Buyers may be taking advantage of a tax credit that requires contracts to be signed by the end of April, indicating that the market might soon see a rebound in sales.

“Some of this may be an increase in activity ahead of the prospect of the expiration of the homebuyer tax credit,” said Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York. Even so, “if what we’re seeing in the labor market is actually showing decent growth, then I would expect housing would follow.”

Pending sales are considered a leading indicator because they track contract signings. The Realtors’ existing-home sales report tallies closings, which typically occur a month or two later. The pending sales data goes back as far as January 2001.

North of the border in Canada the Loonie again moved closer to parity last week on the back of rising crude oil prices. Oil prices have been rising amid growing optimism that improved US job creation will boost economic recovery and lead to higher demand for crude oil. World oil prices have been on an upward trend partly because of signs of improvement in the US economy, but also because of a weak US Dollar which tends to increase prices of commodities priced in that currency.

Yesterday the Canadian Dollar rose by 0.60% against its American counterpart closing at CAD 1.0019 in the forex online market.

Tomorrow will bring the release of Canadian building permits. Permits made a huge jump four month ago before returning to normal. After a fall of 4.9%, permits are expected to rise by 2.1% this time and may give a boost to the currency. Also out tomorrow is the Ivey PMI. This index has shown that the Canadian economy has expanded in the last two months. This time it is expected to show a rise from 51.9 points to 55.1 points.

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Forex: Past events shook market; rush to see force of Upcoming events

Fewer Americans filed claims for jobless benefits last week, bringing the average over the last month to the lowest level since 2008 as the economic recovery prompted companies to retain staff. Initial jobless applications fell by 6,000 to 439,000 in the week ending March 27th. The number of people receiving unemployment insurance was almost unchanged while the number of people receiving extended benefits rose.

Employers are slowing job cuts, a sign of confidence, as the U.S. emerges from the worst recession since the 1930s. Sustained employment gains are needed to boost consumer spending, which accounts for about 70% of the economy. Economists had predicted a drop in weekly claims to 440,000, from a previously estimated 442,000 for the week ended March 20th.

Yesterday a report from ADP Employer Services showed that companies had unexpectedly cut payrolls in March. The 23,000 decline in payrolls was the smallest in two years and followed a revised drop of 24,000 claims the previous month.

In other news the US manufacturing sector has expanded in March at its fastest rate in six years. The Institute of Supply Managements PMI rose to 59.6 points in March, up from 56.5 in February. The PMI is calculated from data on new orders, production, employment, and purchasing. An index reading above 50 indicates that activity is rising. Anything under 50 shows contraction. March was the eight month in succession that US manufacturers have increased output.

The ISM's latest monthly figure for the US exceeded the market expectation of 57 and comes as the wider economy is continuing to recover. The institute said growth was strongest among clothing manufacturers. Other recent economic data showed that consumer spending rose in February but at its slowest rate since September of last year.

In the forex online market yesterday the US Dollar gained 0.72% against the Pound closing trading at GBP 1.5288. Against the Euro the US Dollar climbed 0.58% to close at EUR 1.3585.

Across the water in Europe, retail sales in Germany, the Euro Zones largest economy, fell for the second month in February as bad weather and concern that unemployment might rise kept consumers at home. German consumer confidence slipped to an eight month low in March and the coldest weather in 14 years kept people at home. At the same time rising energy prices pushed inflation to 1.3% in March. But German unemployment fell unexpectedly in March as the economy recovered from recession.

European PMI data showed yesterday that manufacturing across the Euro Zone expanded at a faster pace than initially estimated in March as the recovery in the global economy prompted companies to increase output. According to figures released by the London based Market Economics yesterday the European PMI rose to 56.6 from 54.2 in February. That is above the initial estimate of 56.3 and the fastest rate of growth since November 2008.

European manufacturers are bolstering the recovery from near stagnation in the fourth quarter of 2009 as the Euro's 5.7% drop against the US Dollar this year makes European exports more competitive abroad.

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Forex Market: In Anticipation of Non-Farm Payrolls

In the US the ADP Non-Farm Payroll has shown that companies there unexpectedly cut payrolls in March. The 23,000 decline was the smallest in two years and followed a revised 24,000 drop the prior month, data from ADP Employer Services showed today. Over the previous six months, ADP’s initial figures have overstated the Labor Department’s first estimate of private payroll losses by as little as 2,000 in February to as much as 151,000 in November.

A March payroll gain in line with the median estimate is due to the fact that the ADP’s figures aren’t influenced by weather and don’t include government payrolls which will reflect the hiring of temporary workers to conduct the census. The government has been hiring thousands of workers to conduct the regular 10-year U.S. Census, but those jobs are temporary. ADP includes only private employment and doesn’t take into account hiring by government agencies.
Analysts feel that companies are still hesitant to add workers until they are convinced that the economic recovery has taken hold. Joel Prakken, chairman of Macroeconomic Advisers LLC in St. Louis, which produces the figures with ADP said “the economic recovery has not been long enough or strong enough along the way yet to produce the kind of rapid employment that people are hoping for.”

Tomorrow's release of Non-Farm Payrolls is expected to show growth of 200,000 nonfarm jobs for March. Some economists are even predicting gains of up to 250,000. If the forecasts prove accurate, it would be the largest expansion since November 2007 and only the second advance in the past 27 months.

Although government statisticians try to account for season factors, severe snowstorms throughout the country skewed the data in February. In fields such as retail, construction and transportation, workers missed time and companies delayed hiring decisions. As a result, some of the increase in hiring that should have taken place in February got pushed into March.
Before Non-Farm Payroll data is released tomorrow American unemployment claims are due to be published later today. The figures have been improving in recent weeks dropping from 496K to 442K. Another drop in claims would raise expectations ahead of tomorrow's release however the figures are expected to remain almost unchanged.

Also due out later today is the manufacturing report issued by the Institute for Supply Management. The ISM report for March is projected to rise to 57.4% from 56.5%, according to a MarketWatch survey. Readings above 56% are viewed as consistent with strong growth in manufacturing.

In trading yesterday the US Dollar fell 0.62% against the Euro to close at EUR 1.3507. It gained 0.73% on the Pound to close at GBP 1.5182.

North of the border, Canada’s economy expanded at the fastest pace in three years in January, led by manufacturing, wholesaling and construction, adding to evidence that the country is recovering more quickly than policy makers expected.

Gross domestic product increased 0.6% from December, the fifth straight gain and the biggest since December 2006, according to data from Statistics Canada. The report suggests first-quarter economic growth is still coming in faster than the Bank of Canada predicted, after output expanded at the highest quarterly rate since 2000 in the October-December period. Investors have raised bets that Governor Mark Carney will increase his key interest rate in the next few months on signs of quicker inflation and growth.

Carney has pledged to keep his key lending rate at a record low 0.25% through June unless the inflation outlook shifts. He also said March 24 the commitment is “expressly conditional” on inflation, and said that a key measure of inflation has increased faster than expected.
The central bank predicted the economy will grow at a 3.5 % pace this quarter and a 4.3% rate in the April- June period before slowing through next year. Canada’s 5% growth in the fourth quarter exceeded the Bank of Canada’s 3.3 % estimate. Gross domestic product was 1.3% greater in January than in the same month a year ago. The country’s first recession since 1992 ended in the third quarter of last year.

In a separate report, Statistics Canada said that non-farm payrolls were unchanged at 14.53 million in January from December, and down 1.1% from the year-earlier month. Prime Minister Stephen Harper has said job creation is a top priority for his government this year.
In the forex online market the Loonie climbed up 0.39% against its American counterpart yesterday to close trading at CAD 1.0157.

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