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.

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.

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%.