by Darrell Jobman, Editor-in-Chief

Commentaryfor Thursday, August 21, 2008


The dollar failed to hold stronger than the 1.4750 level in European tradingon Thursday and then weakened steadily. The US currency dipped to lows around 1.49 in New York, the largest one-day decline for a month.

As has been the case during the past few weeks, the dollar moved inversely with commodity price moves.Crude oiland gold prices rose sharply which put the dollar on the defensive as crude rose to above US$120 per barrel.

The US Philadelphia Fed index improved to -12.7 in August from -16.3 the previous month while the prices component was significantly weaker as commodity prices fell. Jobless claims fell to 432,000 in the latest week from a revised 445,000 the previous month, although this was still at an elevated level.

The data is unlikely to have a major impact on interest rateexpectations as it still suggest that the economy is still struggling. The latest reading for leading indicators was also weaker than expected with a 0.7% monthly decline.

The Euro-zone PMI data also remained weak on Thursday as the German manufacturing index dipped to just below the 50.0 level for August while the French data continued to deteriorate. The wider Euro-zone indices provided some relief as they were above expectations, although both were still significantly below the 50.0 level. Overall confidence in global growth is liable to weaken further which will tend to curb dollar selling.

Source: VantagePoint Intermarket Analysis Software


The dollar was unable to make any headway in Asian trading on Thursday as momentum continued to fade.

The Japanese trade surplus fell sharply in July to JPY91bn, an annual decline of over 80%, but exports did return to positive growth which provided some relief as shipments rose strongly to China.

The latest capital account data recorded net outflows from Japan, in contrast to the sharp inflows previously and the yen will struggle to make strong headway if there are sustained net outflows. There is still likely to be interest in curbing carry trades on any significant rallies for high-yield currencies which should limit yen losses, especially as credit-related fears are still an important factor.

The yen retained a firmer tone in European trading and briefly pushed to near 160.0 against the Euro, but encountered selling pressure below the 161.0 level. The dollar dipped to lows near 108.15 before stabilising.


The UK currency had a slightly weaker tone in early Europe on Thursday ahead of the data releases.

Retail sales rose 0.8% in July for a 2.1% annual increase compared with expectations of a monthly decline, but this is unlikely to provide a sustained boost to confidence, especially as the June data was revised down.

The investmenttrends were also weaker than expected with a 1.9% quarterly decline which will maintain fears over the underlying economic outlook. Markets will still be expecting the Bank of England to cut interest rates as soon as there is any relief on inflation grounds.

The GDP revision will be watched closely on Thursday and any downward revision would reinforce negative sentiment. There is a small possibility that the data could be revised to zero growth or even into negative territory which would have a serious negative impact on the UK currency.

Swiss Franc

The dollar was unable to hold above the 1.10 level in Asian trading on Thursday and had a generally weaker tone throughout the remainder of the day. The franc strengthened to highs near 1.0840 and also found support weaker than the 1.62 level against the Euro before drifting from its best levels.

The franc gained some degree of support from unease over financial markettrends while a rally in commodity prices also spurred some currency demand.

Producer prices rose 0.5% in July for a 4.9% annual increase, the highest rate for 19 years, which will maintain unease over inflation, but there are limited expectations over any increase in interest rates which will limit any franc benefit.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian dollar generally consolidated in local trading on Thursday. The latest domestic vehicle sales data recorded a monthly decline which will reinforce fears over the domestic economy, although the immediate impact should be limited given the shift in interest rate expectations already priced in.

Commodity prices will continue to be watched closely and the Australian dollar will tend to gain some support if there is a rally in prices. In this context, strong gains for oil and gold prices pushed the Australian currency to highs around 0.88 against the US dollar in New York.