By Omer Esiner of Travelex
The dollar firmed back toward its recent 10-month peak against the euro ahead of this morning's European Central Bank Governing Council meeting.
Although no change in lending rates is expected at this time, investors will pay very close attention to the postmeeting press conference for any clues on policymakers' outlook on the economy and lending rates.
Key too, will be ECB President Trichets' position on Europe's debt issues and his comments on last month's agreement between the EU and IMF to support indebted Greece. Trichet will likely extend the bank's easy collateral rules to include downgraded Greek government bonds as collateral that it can accept in loans to financial institutions, a step seen as an ECB lifeline for Athens.
As expected, the Bank of England left lending rates unchanged at 0.50% for the 13th straight month and made no changes to its 200 billion pound asset purchase program.
Investors remain focused on a political uncertainty in the U.K. ahead of a general election on May 6. Specifically, market participants are worried that a hung parliament could lead to political gridlock and undermine the government's ability to enact difficult fiscal reforms to reduce the nation's gapping budget deficit.
Cooler commodity prices, which had soared in recent sessions, let some steam out of the rally in dollar-bloc currencies from Australia, New Zealand and Canada.
: The dollar was largely unchanged after data showed weekly jobless claims surprisingly rose from a revised 442,000 to 460,000, well above expectations for 435,000.
The rise in weekly claims runs contrary to recent optimism about an accelerating pace of recovery in the jobs market. Some of the sting of the disappointing report was dulled by the fact that continued claims, the key gauge of longer-term unemployment, fell to its lowest level since December 2008.
: The Bank of England left its key repo rate unchanged at 0.50% for the 13th straight month and made no adjustment to its quantitative easing program.
There was no accompanying statement from the BOE. The pound was lower against the greenback, but its downside was limited by some strong economic date released overnight.
British manufacturing output rose by 1.3% month over month in February, almost double the 0.7% forecast, while industrial production jumped by 1.0% month over month in February, twice the consensus forecast.
The strong factory sector reports helped mitigate some concerns about Britain's weak economic recovery and underpinned the pound in an otherwise soft market. The pound's upside, however, should remain very limited by ongoing political uncertainty ahead of the May 6 general election.
Polls or news ahead of the election that show either party with an increasing majority would limit some uncertainty and help the pound regain its footing.
: The Aussie succumbed to a bit of profit taking overnight after rising to an 11-week high against the greenback and a record high against the euro.
The Aussie's broad rise this week was the result of soaring commodities (crude oil rose to an 18-month high above $86/barrel and gold hit a three-month high above $1150/ounce), and the Reserve Bank of Australia's 25-basis-point rate hike on Tuesday.
The central bank signaled further lending rate hikes in the months ahead, a factor that also underpinned the Australian dollar.
Data overnight showed Australia's economy added 19,600 new jobs in March, which was in line with market expectations. However, full-time employment rose sharply last month, while the unemployment rate held steady at 5.3%.
The strong jobs data does confirm the borrowing costs are headed higher in the coming months, a scenario that should keep the Aussie well supported going forward.
: The ECB left its key lending rates unchanged at 1.00% this morning. In the postmeeting press conference, ECB President Trichet has so far sounded a generally balanced tone with regard to the economy.
He has maintained that that recovery has gained momentum in 2010 but will remain uneven going forward. The bank's inflation outlook remains benign with economic risks more or less balanced.
The ECB expectedly extended its relaxed collateral rules for its loans to banks. So far, the euro is largely unchanged near the lower end of its intraday ranges. Continued sovereign credit issues remain a drag on the single currency and will likely continue to keep it under sustained pressure going forward.
Omer Esiner serves as the Senior Currency Market Analyst at Travelex, Inc. a global financial institution specializing in corporate foreign exchange services and international payment solutions. In this capacity, he monitors, analyzes and interprets the economic, financial, political and technical factors that drive the movements of more than 100 currencies for Travelex. Mr. Esiner explains the currency markets' reaction to market events to clients, employees and members of the media.
You can view his daily reports, recording briefings, and quarterly reviews posted
. As an expert in foreign exchange, Mr. Esiner is quoted regularly by the financial media including The Wall Street Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business Report, National Public Radio, among others. Based in Washington, D.C., Esiner joined Travelex in February 2000. Prior to his current position, Esiner was a currency trader for several years. Mr. Esiner holds a bachelor's degree in economics from the University of Maryland, College Park. He is fluent in Turkish and proficient in Spanish.