Morning Currency Wrap for Thursday April 7, 2011

One And Done Or The First Of A Series? - As expected the European Central Bank raised interest rates by 25 bps to 1.25%. ECB President Jean-Claude Trichet was so deceptive at the post ECB meeting press conference (like a true German central banker except that he is French) that it is very hard to determine if this was the first of series of rate hikes or just one and done. He did say that the hike was intended at anchoring inflation expectations. I think the market is also unsure since the Euro only came off only about 40 pips. Yesterday's announcement that Portugal would seek a bailout caused the Euro to push higher, yes that's right, higher. Why? Like I have said before, the market will view the bailout as the solution to the euro zone's problem. This notion was reinforced after Spain's successful auction of  4.1 billion euros of a new three-year bond today. Meanwhile in the UK, the GBP was little changed as the Bank of England kept its main interest rate at a record low. In Asia, the Bank of Japan kept rates unchanged, which was mildly surprising because there was talk of easing its policy interest-rate range further. Instead, the BOJ established a special lending facility for financial institutions to spur banks to lend to companies with cash-flow shortages in the wake of a magnitude-9 quake and tsunami on March 11, in part to avoid companies from going under. All this caused the Yen to strengthen against the USD as the market had priced in more aggressive liquidity injections. In Australia, the AUD continued to push to new 29-year highs against the USD as the economy added a higher-than-expected 37,800 jobs in March causing the unemployment rate to fall for the first time in 3 months to its lowest level in over 2 years at 4.9%. The large boost in full-time jobs over part-time jobs made this number particularly bullish. In Canada, the CAD was little changed as traders squared their positions ahead of tomorrow's domestic employment data. Canada created an average of 40,000 jobs per month over the last five months, but with February's lackluster gains, market players are keen to see if the February lull was temporary.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4318            USD/CHF     0.9179

GBP/USD    1.6334            USD/CAD    0.9579

AUD/USD   1.0497            EUR/CAD     1.3711

NZD/USD    0.7785           GBP/CAD     1.5643       

USD/JPY      85.23             USD/MXN    11.7674