U.S. Dollar Weakens after Better Jobless Claims Report

The U.S. Dollar weakened against most majorcurrencies following the release of the Initial Claims Report. The Japanese Yenfell on the news.

The U.S. Dollar weakened against most major currenciesfollowing the release of the Initial Claims Report. The Japanese Yen fell onthe news. Look for pressure on thiscurrency if equity markets continue to rally. Demand for commodity-linkedcurrencies is expected to be strong as traders seek higher returns from riskierassets.

The European Central Bank left its benchmark interest rateat a historically low 1% as expected, but the key to today’s Euro movement willbe what comes out of the mouth of ECB President Trichet.

Trichet is expected to address two key issues: the extensionof liquidity support and his opinion on the European bank stress tests. As itcurrently stands, the current ECB stimulus program is set to expire in October.Investors are looking at the possibility of an extension of this program due tothe negative effect the Greek sovereign debt crisis has had on the Euro Zoneeconomy. Investors are also looking for Trichet’s opinion on the on-going bankstress tests. They are looking for Trichet to say that he believes the testswill be stringent enough to restore investor confidence.

The GBP USD is trading lower, but trying to recoverfollowing the U.S. Initial Claims Report. Technically this market is strugglingto break out over the last main top at 1.5228.

Earlier this morning the Bank of England voted to leaveinterest rates unchanged at the record low of 0.5 percent. No one actuallyexpected them to hike rates because of the recently announced austeritymeasures. At a time when a government is slashing spending and threatening toraise taxes, it is necessary for the central bank to continue to keep interestrates low and provide the liquidity when necessary.

One concern for British Pound investors is high inflation,but this morning’s action by the BoE indicates that the majority of its memberschose to fight against a double-dip recession rather than high inflation. Onemember of the BoE policy committee actually voted to hike interest rates butwas overridden by the majority. Today’s early weakness in the Sterling can be attributed in part to theon-going conflict between those who fear inflation and those who fear a declinein the economy.

The latter’s case was bolstered overnight when it wasreported that the average house price in the U.K. fell by 0.6% in June for thethird consecutive month. Although U.K. manufacturing sector datashould its fastest annual growth in more than 15 years, this news was largelyignored by investors who felt it was just an offset of huge losses sufferedduring the height of the recession last year.

Upside momentum appears to be strengthening this morningwhich should bode well for the Australian, New Zealand and Canadian Dollarswhile pressuring the Japanese Yen.