The U.S. Dollar is paring its earlier
losses against the major currencies at the mid-session while posting gains
versus the Swiss Franc, Canadian Dollar and New Zealand Dollar.
The Greenback was under pressure most of
the session, pushing the Euro to its highest level since February 2010 and the
Japanese Yen to its strongest level since April 1995.
This morning the European Central Bank left
its benchmark interest rate unchanged at 1% sending the EUR USD higher, but the
single-currency backed off after touching 1.4028 as buyers disappeared.
European Central Bank President Jean-Claude
Trichet may have contributed to the start of the decline when he said the
central bank has not changed its view on being in exit mode from the easy
monetary policy steps it took during the credit crisis.
Trichet did not identify any specific
action the ECB would take to end these emergency measures so his comments
werenâ€™t taken as bearish, but long investors used them as an excuse to pare
positions ahead of Fridayâ€™s U.S. Non-Farm Payrolls Report.
Todayâ€™s ECB statement reaffirms that the
central bank stands in contrast to the U.S. Federal Reserve, which is still
seeking ways to stimulate the economy through the use of quantitative easing.
The Fedâ€™s flooding the economy with cash, which is expected to take place as
early as next month, is the catalyst driving the U.S. Dollar sharply lower.
Trichet also added that he feels the
current ECB policy is appropriate and that the economic recovery should proceed
at a moderate pace. This line was recycled from the last policy statement.
Based on the what the ECB did and Trichet
stated, one has to conclude that the European Central Bank is more hawkish than
the U.S. central bank which is still discussing the possibility of expanding
its balance sheet. These facts remain the driving force behind the Euroâ€™s
From what I see, the Euro is rallying
because of sound economic reasons. High
volatility or excessive speculation is not apparent at this time. Although
short-term overbought conditions as well as nervousness ahead of Fridayâ€™s U.S. employment
report may trigger a profit-taking break today, the main trend remains up and
is not expected to be threatened at this time.