By Omer Esiner of TravelexThe dollar remained under pressure overnight, falling to a new six-week low against a basket of its major counterparts. The greenback's broadly heavier tone was largely due to the Federal Reserve's pledge Tuesday to keep its policy stance extremely accommodative for an extended period of time. Record low lending rates undermine the appeal of dollar-denominated assets and encourage traders to seek higher yields in riskier assets like stocks, commodities and emerging-market currencies. The dollar had already been pressured by some moderation of concern about Greece's credit crisis after Standard & Poor's removed the nation's credit rating from review for an additional downgrade earlier this week. Risk assets like stocks and higher-yielding currencies were buoyed by the Bank of Japan's move overnight to further ease monetary conditions. The central bank doubled its budget for assets purchases to ensure that banks in the world's second largest economy have access to ample liquidity. The flood of liquidity provided to global economies by major central banks remains supportive of risk assets and should continue to undermine the appeal of low yielders like the dollar and yen. The pound jumped to a three-week high after minutes of the Bank of England's latest policy meeting showed officials voted unanimously to leave lending rates and the bank's quantitative easing program unchanged. Strong jobs figures added to the pound's surge overnight. USD: U.S. wholesales prices fell by 0.6% month over month in February, a larger drop than the expected 0.2% decline. Excluding food and energy, PPI was up just 0.1% month over month, exactly as expected. The data show that the Fed's lack of concern about inflation is, at least for now, justified. However, in the last month, commodity prices have soared higher, a fact that is likely to be reflected in upcoming readings of wholesale prices. The dollar was mostly unchanged on the news. GPB: The pound soared to near a three-week high against a basket of currencies overnight after a combination of supportive Bank of England minutes and a blowout jobs number prompted investors to trim some of their short positions in the British currency.
The minutes from the BOE's policy meeting earlier this month showed that officials voted unanimously to keep lending rates at a record low of 0.50% and leave the bank's 200 billion pound asset purchase program unchanged. The minutes also showed that officials saw inflation remaining at elevated levels in the months ahead. Data overnight showed a massive drop in the number of Britons claiming unemployment benefits. The U.K.'s claimant count fell by 32,300 in January, confounding expectations for a rise of 8,000. It was the largest monthly drop in the claimant count since November 1997. Although further near-term position adjustments could push the pound higher, the currency should have a difficult time sustaining its gains. A lackluster recovery and political uncertainty are likely to cap the pound's upside going forward. JPY: The yen fell across the board overnight after the Bank of Japan loosened monetary policy again. Central bank officials announced a doubling in their 10 trillion yen budget for short-term loans provided to the banking sector. Although the easing was largely expected, officials were split in their vote to raise the budget for short-term loans. Moreover, the BOJ did not increase the term (three months) of its short-term loans, as many had expected. The yen's downside was somewhat limited by the fact that many had expected the BOJ to adopt an even more accommodative stance. The move helped support risk appetite and higher-yielding assets across the board, which undermined the yen and the dollar. Central banks' pledges to keep the liquidity spigots wide open should continue to keep risk appetite well supported going forward. AUD: The Australian dollar rose to a new three-month high against the greenback and bounced further off a two-week low against the Canadian dollar overnight, broadly supported by both the Fed's and the Bank of Japan's pledge to keep the liquidity taps wide open for the foreseeable future. The ultra-accommodative policy stance of global central banks underpins demand for higher-yielding and riskier assets like the Australian dollar. The surge in commodities like gold and oil has added to the broad appeal of the dollar-bloc currencies.