by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar remained under pressure on Thursday with the trade-weighted index dipping to fresh 30-year lows. The US currency also weakened to new all-time lows around 1.4310 against the Euro before a fragile recovery. Weaker Band of America results helped trigger a further erosion of US economic confidence which has, in turn, undermined the dollar.
As far as today’s data releases were concerned, US jobless claims rose to 337,000 in the latest week from a revised 309,000 the previous week which was a seven-week high and will revive fears that the labour market is now starting to deteriorate. Elsewhere, the Philadelphia Fed index fell to 6.8 in October from 10.9 the previous month while there was a strong increase in the prices component. Overall, markets increased the probability of an October Fed rate cut to near 70%.
The US currency is still being unsettled by the capital account data released earlier this week with fears over underlying diversification away from the US currency. The G7 meetings over the weekend will be important in assessing the degree of opposition to further dollar losses. If there is no evidence of serious concern, the US currency will be vulnerable to fresh selling pressure.
The German economic institutes downgraded their 2008 growth forecast to 2.2% from 2.4%, although their stance overall was still confident.
Source: VantagePoint Software, Market Technologies, LLC
The dollar was unable to regain the 117.0 level in Asian trading on Thursday and the yen secured renewed gains in Europe as stock markets retreated. The yen strengthened to highs around 115.30 against the dollar before stabilising.
Remarks from Chinese central bank officials that the market would be allowed to take a greater role in setting the currency helped support the yen, especially with renewed speculation over a yuan revaluation.
The monthly Tankan index fell to 21 in October from 24 the previous month which was the weakest figure for two years. The subdued data will continue to dampen expectations of a near-term Bank of Japan interest rate increase. The latest capital account data recorded a near-balanced position.
Sterling pushed stronger after the retail sales data, although the principal factor triggering an advance to 2.05 against the dollar was a renewed decline in the US currency. In this context, Sterling drifted weaker to 0.6990 against the Euro and failed to hold the best levels against the dollar.
UK retail sales rose 0.6% in September to give an annual increase of 6.3% which was the strongest level since September 2004. The data will provide some immediate Sterling support with reduced speculation that the Bank of England will consider a near-term cut in interest rates.
The impact will be lessened by the fact that the volume gains were again led by retail discounting with the prices index falling 1.5%, the weakest reading since the beginning of 2005.
The housing sector will continue to be an important background concern for the UK currency and will tend to limit Sterling buying support following the IMF warnings. The mortgage data suggested an underlying slowdown in lending, although there was no evidence so far of a sharp deterioration.
The franc secured a significant advance to 1.6720 against the Euro on Thursday and also strengthened to highs around 1.1660 against the dollar as selling pressure on the US currency coincided with a reassessment of franc prospects.
National Bank President Roth stated that it would be wrong to assume that the central bank would not increase interest rates again. Roth also stated that the bank was particularly vigilant over inflation and that renewed franc weakness would not be justified. The comments indicated greater concern by the National Bank which should help protect the currency.
The Swiss currency will also remain correlated with levels of risk aversion. Any sustained losses in global stock markets would tend to support the franc.
The Australian dollar has been subjected to volatile trading over the past 24 hours as the local currency has tracked global stock market and US dollar moves in volatile conditions. The Australian currency found support close to 0.8820 against the US dollar with a rally to levels above 0.89 in local trading on Thursday.
With international trends dominant, high commodity prices are underpinning the currency. Underlying confidence in Asian markets will help underpin the Australian dollar, although volatility is liable to remain higher. The weak US dollar was the dominant influence and helped push the Australian currency back to 0.8950 in US trading.