Risk avoidance continues to dominate midweek after China indicated that even with growth softening at the edges it would maintain a tough stance on inflation. And as investors gear up for Friday’s key labor market data, U.S. employers added fewer new positions last month helping to keep the horizon free from any signs of monetary tightening, adding to recent downside pressure on the dollar. The size of a partner-bailout for Portugal was announced earlier along with terms and conditions although the single euro didn’t bat an eyelid ahead of Thursday’s central bank meeting.
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U.S. Dollar – For a couple of weeks now we’ve watched weekly initial claims data climb above the pivotal 400,000 mark, which is thought of as a watershed. Readings beneath it are associated with sufficiently strong monthly payroll growth that would reduce the rate of unemployment, while readings above just don’t budge the economy forward fast enough. The April ADP private payroll reading was earlier released and showed a dip in new payroll growth, which doesn’t augur well for official government data on Friday. The dollar index rebounded from its earlier swoon at the start of the week to its lowest since July 2008 but is back under pressure once again following today’s reading. The index shed 0.3% to stand at 72.86.
Euro – It was announced that Portugal received a three-year loan of €78 billion at an undisclosed rate of interest to help it through its sticky patch having officially requested assistance from its European partners in April. The Portuguese government fell having failed to win over opposition lawmakers with its plan for further austerity measures in the face of an expected slide of 1.4% in domestic growth through 2011. The package depends on the nation’s ability to slash its budget deficit as a proportion of GDP to 5.9% by the end of the year and back to 3% by the end of 2013. That’s a tough call for a nation struggling to grow with consumers strapped and unemployment running high. The single currency looked through the details of the package and continued to rally against the dollar rising to $1.4928 after the ADP data detracted from the greenback. Investors are more concerned with what ECB Governor Trichet will say on Thursday following the central bank’s discussion on monetary policy. There is little pent-up expectation of a rate increase at the meeting although investors fully expect a June-time increase of a further 25 basis points. Bullish buyers looked right-through a March retail sales report showing an unexpected monthly slide of 1% in activity.