Daily Report: EUR/USD, GBP/USD, USD/JPY And USD/CAD

The U.S. Dollar declined against the Euro but reached a two and a half year high against the Yen as the President of the European Central Bank issued a statement that the region’s economy would stabilize in 2013. On the data front, the U.S. Labor Department revealed that the number of individuals who applied for Unemployment Benefits declined by 7,000 to a seasonally adjusted 340,000 last week. Other releases showed that the country’s Trade Deficit expanded more than predicted. According to official Commerce Department figures, the gap widened by 16.5 percent from $38.1 billion in December to $44.4 billion in January. Analysts explained that this was brought on by a drop in exports, as fuel oil and gold reversed earnings in the previous month. The Canadian Dollar rebounded from an almost eight month-low versus its American counterpart after the country posted the smallest Merchandise Trade Deficit in close to 12 months in January as exports of crude oil and bitumen rose. The Loonie surged versus the majority of its peers after the U.S. announced that the number of individuals who filed for Unemployment Claims dipped to a six-week low, suggesting that the sector is still improving. The Canadian currency dropped the day before when the central bank left the cost of borrowing money unchanged.

The Euro climbed the most in eight months against the U.S. Dollar and rallied versus the Yen after the European Central Bank left the benchmark interest rates at 0.75 percent and indicated that the majority of the bank’s officials supported the decision. The ECB revised its forecasts for economic growth in 2013 and suggested that Gross Domestic Product may shrink between 0.1 and 0.9 percent rather than the previously estimated 0.3 percent. The shared currency was also supported by news that Spanish borrowing costs fell during a bond auction. The British Pound reversed early session losses against the U.S. monetary unit after the Bank of England announced it would leave the interest rate at 0.5 percent and refrained from making any changes to the current asset-purchasing program.

The Yen slipped for the second day in a row against the greenback as the Bank of Japan rejected the idea of an immediate implementation of open-ended asset purchasing. Japan’s currency was also weighed down by U.S. Labor Department reports which revealed that the number of American who filed for Unemployment benefits plunged to a six-week low, thereby reducing demand for the safety of the Yen.

Lastly, in the South Pacific, the Australian Dollar recouped its footing on speculation the widening of the country’s Trade Deficit won’t cause the Reserve Bank to cut interest rates. The Aussie rallied versus the majority of its peers as market investors speculated over whether policy makers would maintain the current interest rate when meeting later this month. New Zealand’s Dollar weakened as the MSCI Asia Pacific Index of Shares dipped 0.4 percent.

EUR/USD- ECB Leaves Rate Unchanged
The Euro traded at the highest rate in eight weeks against the U.S. Dollar after the ECB’s President, Mario Draghi, stated that policy makers considered cutting the benchmark rate, but in the end decided to leave it at 0.75 percent. He added that inflation is still within the comfort zone and though the economy is facing serious challenges, a turn-around towards the end of 2013 was expected. Economists explained that the rally in the Spanish bond yields is proof positive that confidence has returned to the Euro-zone.
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GBP/USD- BOE Makes No Changes
The British Pound erased an early decline against the U.S. Dollar as the Bank of England refrained from expanding the stimulus program. The Sterling was also supported as positive statements from ECB President Draghi bolstered risk appetite. According to reports, the central bank’s policy makers agreed to leave the costs of borrowing money at 0.5 percent. The Minutes from the meeting will be issued on March 20th. The Pound had declined early in the session on speculations the bank would increase the asset purchases. The bank indicated that growth will be slow in the near future.
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USD/JPY- Yen Plunges After BOJ Announcement
The Yen dropped to the lowest level since 2009 against the U.S. Dollar after the Bank of Japan announced it won’t make any changes in the stimulus program and will leave the interest rate unchanged. The Governor of the Bank of Japan, Masaaki Shirakawa, has expanded the central bank’s assets and has introduced an inflation target; however, when he stated he was resigning, equities soared. During his final policy meeting, he made no further changes to the current measures. Analysts believe this is what has stopped the bank from stemming deflation. Japan will continue with the current JPY76 trillion in asset purchasing.
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USD/CAD- Canada Posts Smallest Trade Deficit
The Canadian Dollar strengthened against its American counterpart after the release of better than expected domestic data. According to official reports, Canada posted the smallest Merchandise Trade Deficit in close to 12 months. Statistics Canada confirmed that the Trade Deficit went from CAD0.3 billion to CAD0.2 billion in January. Exports climbed CAD39.1 billion after prices rose 1.3 percent; volume increased 0.9 percent while imports went up to CAD39.3 billion. Other releases indicated that Building Permits climbed by a seasonally adjusted 1.7 percent in the first month of 2013.
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Today’s Outlook
Today’s economic calendar shows that Japan will issue the BOJ’s Monthly Report. Switzerland will issue CPI. Canada will report Housing Starts, Employment Changes, Labor Productivity and the Unemployment Rate. The U.S. will announce Average Hourly Earnings, Non-Farm Payrolls, Private Non-Farm Payrolls, and the Unemployment Rate. Lastly, China will publish CPI and PPI.