U.S. Dollar Gains, Fades on Initial Jobs Data, Then Firms
Thu, Jun 24, 9:41 AM ET, by Scott V. Nystrom
Heightened risk aversion and fear of continued global economic weakness in the U.S. and a move toward austerity in Europe helped firm the U.S. dollar on Wednesday. Positive initial job claims released on Thursday morning provided a slight morning reversal. Wednesday’s plunge in new-home sales and the Federal Reserve’s gloomy economic report had investors moving into dollars as a safe haven play as risk appetite dwindled yet again. New Homes, Durable Goods Beat Expectations New-home sales for May fell by nearly one-third from April to the lowest level ever recorded, an annual rate of 300,000 according to the U.S. Department of Commerce. Sales fell 18.3 percent compared with a year ago. Uncertainty about the ongoing sovereign debt crisis in the euro zone is also driving aversion to risk assets. The lack of certainty is driven largely by a lack of consensus among euro zone countries on how to create a strong and sustainable economic recovery. If economic headwinds are in focus, the U.S. dollar generally outperforms other currencies. The U.S. Department of Labor released initial jobless claims at 8:30AM (EST) this morning. The result surprised analysts, falling 19,000 last week to a seasonally adjusted 457,000 level. This was the lowest level in six weeks and beat expectations of 465,000 initial claims. On the manufacturing front this morning, the U.S. Commerce Department said orders for durable goods dropped in May, sinking 1.1 percent on weaker demand for airplanes, steel and communications equipment. This was viewed as mildly positive on expectations for a 1.4 percent decline. Currency Reaction The U.S. dollar index, which tracks the dollar's performance against a trade-weighted basket of six major currencies, was at 85.71 before the open of U.S. equity markets versus 85.96 ahead of the job claims and durable goods data. The index had risen as high as 86.00 yesterday. The euro is trading at $1.2289 compared to $1.2268 ahead of the data, The euro rebounded marginally higher following the somewhat positive U.S. durable orders and initial claims data results. The British pound extended the week’s gains, supported by a Tuesday announcement of the new government’s emergency budget to reduce spending and cut the U.K. budget deficit. The British pound rose as high as $1.5011 and is trading at 1.4993 before the open of U.S. equity markets. The Australian dollar tripped below 0.867 this morning. The Aussie started higher, boosted by new Prime Minister Gillard who called for a truce between the government and the mining industry regarding a 40 percent tax on miners’ profits, beginning in 2012. The Canadian dollar has come under pressure after surging higher on Wednesday. Heightened risk aversion and uncertainty from the Bank of Canada's Lane and Carney combined with a very weak Canadian retail sales report. The high so far today is 1.0448 and is trading at 1.0426 just before the open of U.S. equity markets.
SDI Glossary: "the Fed" Definition
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