FX round-up: Dollar loses grip on gains

Date: Friday 12 Mar 2010

A surprise decline in the US trade deficit and fall in weekly jobless claims helped the dollar Thursday, but it was unable to hold its advantage later in the session.

Traders liked news that America’s trade deficit narrowed by a seasonally adjusted 6.6% in January to $37.29bn. Economists thought the figure would be higher than December’s $39.9bn.

Meanwhile, initial claims for US unemployment benefit fell to 462,000 last week, according to the Labor Department. Analysts, who’d expected a drop to 460,000, think last year’s downward trend will soon resume.

But the euro has steadied following last month’s nine-month low against the greenback, shrugging off fears of a default by Greece, or other weak European economies.

Sterling recovered from Wednesday’s one-week lows against both the dollar and single currency as inflation expectations among the public edged up slightly in the three months to February.

The Bank of England’s latest quarterly survey of the public’s expectations for inflation showed a rise to 2.5% in February, up from 2.4% in the three months to November.

Most of the survey respondents actually believed inflation is currently 3.4%, which is up modestly from 3.2% in the November 2009 survey but still down from 3.8% in the August survey.

Analysts think the pound will remain under pressure though ahead of a widely-anticipated general election in May.

Worries about the impact of a hung Parliament, record budget deficit and a possible downgrade to Britain’s AAA rating have already sent the UK currency down through the $1.50 level.

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