The U.S. dollar erased yesterday’s losses against the Euro and the Japanese yen before President Barack Obama unveils proposals to spur job growth and the U.S. economy. Obama, facing re-election in 2012, will address a joint session of Congress today on proposals to spend on job creation that may inject more than $300 billion into the economy next year. Almost half the stimulus may come from tax cuts, including an extension of a 2 percentage-point reduction in the payroll tax paid by workers due to expire December 31st and a new decrease in the portion of the tax paid by employers. The U.S. economy grew at a 1.0% annual rate in the second quarter and employment remained stuck at 9.1% in August as job growth stagnated. Today’s economic docket showed that claims for U.S. unemployment benefits rose last week, a sign the labor market is struggling to gain traction more than two years after the recession ended. Claims rose by 2K to 414K, Labor Department figures showed today in Washington.
The Euro declined against the U.S. dollar after the European Central Bank held their benchmark interest rates at 1.5%, in line with economist’ forecast. ECB President Jean-Claude Trichet will hold a press conference in Frankfurt this morning and some expect he will signal a less aggressive stance toward inflation, weakening the common currency. Indeed, traders are now betting the ECB will be forced to cut borrowing costs by 26 basis points over the next 12 months, a Credit Suisse Group AG index based on swaps showed. Some investors also believe that the central bank will cut euro zone growth forecasts for the rest of the year and 2012. Expect the EUR/USD to trade in choppy ranges this morning while headlines of Trichet’s comments hit the wire.
The Japanese yen maintained its familiar range against the U.S. dollar as global equity markets have ebbed and flowed this week. Japan’s Economic and Fiscal Policy Minister Motohisa Furukawa said the yen is at a “considerably high” level given that it is stronger than the rate companies used to calculate their earnings forecasts. A strong yen has long been thought to damper the export-driven recovery of the island nation.
The British pound rose against the U.S. dollar and the Euro after Bank of England policy makers kept interest rates unchanged and decided against boosting asset purchases. The nine-member Monetary Policy Committee maintained the target of its bond program at 200 billion pounds. The central bank stopped buying securities in early 2010 as the economy emerged from recession. While Adam Posen has been the only policy maker to vote for further purchases, the darkening economic outlook prompted members Spencer Dale and Martin Weale last month to end their push for an increase in rates. Nevertheless, the inflation rate remains at 4.4% in July, more than twice the central bank’s target.
