Euro Hits New High Against Dollar On Unchanged Interest Rate

The European Central Bank unanimously left its main interest rate unchanged at 4% Thursday, as expected by the market. In the press conference following the announcement, President Jean-Claude Trichet said when it comes to inflationary pressures in the Eurozone, there is “certainly no room for complacency”. While he noted there is “high uncertainty” regarding Eurozone economic prospects, he said that it “would be wrong” to interpret his increased concerns about the economy as an indication that the ECB may be more open to cutting interest rates than it was last month. He emphasized that clamping down on inflation over the medium term is the ECB’s “highest priority”. Even though he said he “deplores the excessive volatility of exchange rates” and had been “concerned by recent excessive moves”, traders and investors are unlikely to act on his familiar message. Trichet also said the outright purchase of mortgage-backed securities is not an option for ECB. From Trichet’s comments, we can expect the ECB to hold onto the prevailing rate for as long as it can.

UK Cuts Rate

The Bank of England cut the bank rate Thursday by 25bp to 5% as largely expected by the markets.

US Trade Deficit Widens

The US trade deficit rose more than expected for a second straight month in February, increasing by 5.7% in February to $62.3 billion, the highest level since November. Surprisingly, imports of goods and services surged 3.1% to a record high of $213.7 billion. Usually in a recessionary environment, you would expect lower domestic demand for foreign goods, but in this case, Americans were busy snapping up foreign cars. US exports also set a record, rising by 2% to $151.4 billion; that reflected a strong demand for American-made heavy machinery, computers and farm goods, boosted by the weak US dollar. Meanwhile US initial jobless claims fell sharply last week to 357,000, down by 53,000 from the previous week, which was the highest level in more than two years. However, the four-week average for claims rose by 2,500 to 378,250, the highest level since early October 2005.

Forex Trading

After days of quiet contemplation, USD/CHF finally slipped below the crucial 1.0000, dropping more than 100 pips to a session low of 0.9890. EUR/USD on the other hand spiked higher to an all-time high around 1.5920 after the ECB left rates on hold, but with G7 meeting coming up this weekend, Euro bulls just don’t want to pile up on their Euro long positions. As a result, EUR/USD bounced off and is trading in the mid 1.5700s now.

Friday:

Canada new housing price index 1230 GMT

US import price index 1230 GMT

U of Mich confidence 1400 GMT

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