Dollar Is Losing Ground After Weak Economic Reports

February 5, 2015

Washington (Feb 5)  The dollar is pulling back against the Euro and the pound sterling Thursday, following the release of several weaker than expected economic reports. Labor productivity unexpectedly declined, while the trade deficit widened more than anticipated. The rebound in weekly jobless claims was also weaker than expected. Investors will be watching for the release of the US jobs report for January Friday morning.

After reporting a notable decrease in first-time claims for US unemployment benefits in the previous week, the  Labor Department  released a report on Thursday showing that initial jobless claims rebounded by less than anticipated in the week ended  January 31st  .

The report said initial jobless claims rose to 278,000, an increase of 11,000 from the previous week's revised level of 267,000. Economists had expected jobless claims to climb to 290,000 from the 265,000 originally reported for the previous week.

Labor productivity in the US unexpectedly showed a notable decrease in the fourth quarter of 2014, according to a report released by the  Labor Department  on Thursday. The report said productivity tumbled by 1.8% in the fourth quarter following an upwardly revised 3.7% jump in the third quarter.

Economists had expected productivity to edge up by 0.2% compared to the 2.3% increase that had been reported for the previous quarter.

Meanwhile, the  Labor Department  said unit labor costs surged up by 2.7% in the fourth quarter after falling by a revised 2.3% in the third quarter. Labor costs had been expected to climb by 1.2% compared to the 1.0% drop that had been reported for the previous quarter.

With imports jumping and exports falling, the  Commerce Department  released a report on Thursday showing that the US trade deficit unexpectedly widened in the month of December.  The Commerce Department  said the trade deficit widened to  USD46.6 billion  in December from a revised  USD39.8 billion  in November, reflecting the widest deficit since November of 2012.

The wider trade deficit came as a surprise to economists, who had expected the deficit to narrow to  USD37.9 billion  from the  USD39.0 billion  originally reported for the previous month.

Cheaper oil and a weaker euro have brightened the growth outlook for the Eurozone with every member economy expected to grow for the first time since 2007, the  European Commission  said Thursday, even as geopolitical tensions and the financial market volatility due to diverging monetary policy in major economies as well as the turbulence linked to the developments in  Greece  pose significant risks.

The executive arm of the EU raised the growth forecast for Eurozone for this year and the next, citing strengthened domestic and foreign demand, very accommodative monetary policy and a broadly neutral fiscal stance.

In its winter forecast, the commission forecast 1.3% growth in the euro area for this year, which was higher than the 1.1% predicted in November. The growth outlook for 2016 was also raised to 1.9% from 1.7%. The economy was estimated to have grown by 1% in 2014.

The dollar has fallen to around  USD1.1490  against the Euro this afternoon, from and early high of  USD1.1315  .

German factory orders rebounded at the fastest pace in five months underpinned by both domestic and foreign demand in December. Factory orders grew a seasonally and working-day adjusted 4.2% month-on-month in December, reversing a revised 2.4% fall in November, figures from Destatis showed Thursday.

The latest order growth was the strongest since July, when demand rose 4.8%. The growth also exceeded a 1.5% rise expected by economists.

 Germany's  construction sector contracted in January, though at a fractional rate , results of a survey from Markit Economics showed Thursday. The purchasing managers' index for the construction sector, or PMI, fell to 49.5 in January from 50.5 in the previous month, indicating marginal contraction.

The Bank of  England  kept its key interest rate at a historic low once again as record low inflation provides more space for the central bank to keep its monetary policy loose and support economic activity.

 The Monetary Policy Committee of the BoE  decided to retain the key bank rate at 0.50% and the size of asset purchases at  GBP 375 billion  at the end of the two-day rate setting meeting on Thursday.

The rate has been at a record low since early 2009 and is expected to remain so throughout the year.

The greenback has extended its losses against the pound sterling to a third consecutive session, falling to a 1-month low of  USD1.5330  from around  USD1.4990  on Tuesday.

 U.K  house prices increased for the third straight month in January, survey data from  Lloyds Banking Group's   Halifax  division showed Thursday. House prices climbed 2.0% month-on-month in January, faster than the 1.1% rise in the previous month. Economists had expected house prices to remain flat during the month.

The Japanese government nominated  Yutaka Harada  to the central bank's nine-member policy board on Thursday. Harada, 64, will replace  Ryuzo Miyao  , whose five-year term ends on  March 25  . His nomination is subject to the approval of both houses of parliament.

Harada is an advocate of reflationary policies. If the appointment of  Waseda University  professor is confirmed,  Bank of Japan Governor Haruhiko Kuroda  is likely to get support for his expansionary policies.

The buck has risen to around  Y117.520  against the Japanese Yen Thursday afternoon, from a low of  Y117.022  this morning.

The dollar has slipped to around  USD1.2425  against the Loonie Thursday afternoon, from  USD1.2586  this morning.

The Canadian trade deficit widened to  CAD649 million  in December, from a revised  CAD335 million  in November, according to a report from Statistics Canada Thursday morning. Economists had expected a trade deficit of  CAD1.10 billion  . This was the third consecutive month that  Canada  logged a trade deficit.

Source: AllianceNews

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