Dollar bulls have nothing but jobless claims

US Dollar

Greenback weakness could be felt since the morning hours as the U.S. fell victim to better than expected economic data in the majors and a dearth of powerful reports on the day.  The sole release that powered some retracements in the market was the weekly initial jobless claims report.  Expected to rise 300,000, applications for first time claims actually dipped to 278,000, additionally below the 297,000 seen in the previous week. 

The positive report now sets the stage for the durable goods orders report set for release today.  Should the report be released better than expected, it would be a continuance of the recent string of dollar positive data seen over the course of the quarter as it reflects healthy consumer spending in the world’s largest economy as the labor market tightens.  Expected to decline overall on a plunge in the demand for commercial aircraft, the monthly figure is still expected to rise once again.  Ultimately, with policy makers now looking for economic data in justifying further rate hikes, policy makers may very well be prompted once again.

Euro

Rising to a 14-year high, German business sentiment increased in the month as, simultaneously, consumer confidence in the region’s largest economy expanded to an 11-month high.  According to the Ifo confidence index, the monthly survey rose to a reading of 103.3 from a lower 101.5 reading seen in January.  Coupled with the better than expected rise in consumer confidence in Germany according to the GfK survey, the future looks brighter for the once downtrodden economy as it becomes clearer that the central bank will raise rates in March.  This is somewhat contrary to figures that were seen over the previous week as overall growth prospects were looking thin in both France and Germany, both powerhouses for the member states. 

Orders, reflective of exports, additionally fell in the German economy.  Nonetheless, with the broader spectrum of exports in the positive, stronger global foreign demand looks to compensate for losses domestically as the region continues to battle with record inflation and head into positive territory.  Looking ahead, traders’ focus looks to turn to consumer prices in the German economy tomorrow in justifying the anticipated rate hike.

British Pound

Sterling got a lift against the greenback today as interest rate cut fears dissipated following yesterday’s optimistic Bank of England meeting minutes and a report that reflected healthy order activity in the economy.  With a clear 8-1 victory on the side of a stay on rate cuts, market sentiment is now growing more confident that the upticks seen in the housing sector and manufacturing are offsetting considerable weakness in the retail sector. 

As a result, in light of last night’s disappointing total business investment report, traders are now looking optimistically ahead to tomorrow’s gross domestic product report.  Expected to rise in line with the previous reading of 1.7 percent annually, the monthly climb is looking rather upbeat.  Rising 0.4 percent in the previous reading, growth in the fourth quarter is expected to rise 0.6 percent, reflective of the recent string of manufacturing upticks as production is revitalized.  Should the figure rise against the consensus, looking ahead, more emphasis may be placed on the domestic consumption as it continues to remain a thorn in the queen’s side.

Japanese Yen

Yen bulls finally had their day on the session, driving the domestic currency higher across the board and the most against the dollar in almost two months after comments by Bank of Japan Governor Toshihiko Fukui suggested that interest rates may be ready to rise.  Citing the end of seven year deflationary levels, the central banker noted that monetary authorities will reduce the amount of physical cash that is being flushed into the country’s financial system “immediately” upon indications that inflation is formally rising as growth continues in the world’s second largest economy. 

However, although certainly accepted as optimistic, market sentiment remains resoundingly convinced that rates will not realistically rise till the second half of the current calendar year at the earliest.  Nonetheless, the announcement has sparked numerous sources of speculation that the carry trade notion may very well be on its way out as a result.  Used mostly for its zero interest rate yield, the Japanese yen denomination will become a foregone source of low rates compared to higher yielding currencies as a shift seems likely as a result of the potential near term hike.  Separately, merchandise trade balance figures were disappointing to say the least as the economy has now shifted to a deficit, the first time in five years.

Kathy Lien