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The euro exchange rate has weakened considerably against most major currencies on speculation that the European Central Bank cut its key interest rate to a record low next week, thus supporting the region's economy. Note that analysts began to predict a decline in May, after the data on the activities of the areas of production and services in April pointed to the weakness of economic growth. Officials of the Monetary Policy Committee of the European Central Bank have also indicated that they may consider lowering rates at the conference, which will take place on May 2. The President Mario Draghi said back on April 19, he did not see any improvement on economic data, hinting that it could reduce the cost of borrowing, if the recovery falters housekeeper.
Executive Board member Joerg Asmussen said the rates may be reduced if the data show that the need arise, and his colleague Vitor Constancio said yesterday that the ECB is "ready to act." Add that Nomura economists now suggests that the ECB will reduce the 2 May its key rate to 0.5 percent from 0.75, while the previously forecasted decline in June. JPMorgan also changed their forecasts, and financial institutions such as Commerzbank AG, UBS, RBS, Rabobank International and ABN AMRO Bank NV also predict a decrease in rates in May.
The British pound rose significantly, aided by the British publication of the data. Note that today's report on UK GDP for Q1 showed that the UK economy managed to avoid the dreaded "triple" recession, while showing a growth rate of 0.3%, which was above the average analyst forecast of 0.1%. The reason for the unexpected growth of the economy was the services sector, which expanded at a 0.6%, while the strongest sectors were transport and communications (1.4%), which is completely at odds with reports that bad weather had violated distribution channels. We add that the Bank of England is now in a more comfortable situation at the persistence of the current monetary policy at its next meeting in two weeks, but the markets have already received a hint that this might happen, after yesterday's announcement about the growth of the program funding banking sector has pointed out that the Bank of England will delay the expansion of quantitative easing and direct its resources on targeted policies aimed at expanding credit channels.
The Japanese yen rose against the dollar. Note that a new wave of rising yen threatened the mark of 99.00. In the light of future events in Japan - the inflation report and the meeting of the Central Bank, analysts note that the data will point to the problem faced by the Bank of Japan announced at the meeting that tomorrow. It is unlikely that the Central Bank will be decided on the new measures, but the monetary authorities can update their inflation forecasts. It should be taken as a signal. In anticipation of the success of its program, the Bank of Japan may raise its forecast for the 2014 fiscal year to 1.5%, while expectations for 2015 could rise to 2%.
The Canadian dollar reached its highest level in more than a week against the U.S. dollar after data showed that the UK economy could avoid a reduction in the first quarter, sparking interest in riskier assets. Currency also strengthened against most of its major against the fact that the U.S. Labor Department reported that the number of Americans who first applied for unemployment benefits fell last week to near five-year low, which is a sign that employers are seeing increased demand may increase the number of employment. According to the report, for the week ended April 20, the number of initial claims for unemployment benefits fell to a seasonally adjusted 16,000, reaching 339,000 at the same level. Note that this was the lowest level since early March, and the second lowest since January 2008. According to the average forecasts of experts, the value of this index was to remain unchanged at 352 thousand, which was originally reported in the previous review. Also worth noting is that the value for the previous week was revised upward to the level of 355 thousand Moreover, the data showed that the average number of initial claims for the past four weeks fell by 4,500 to 357,500. Economists note that the submitted report is a sign that the labor market is steadily, albeit slowly progressing. As a general rule, reducing the amount of benefits means that employers cut fewer number of workers, and possibly hire more.
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