IB FX View

Dollar continues to decline as gold makes fresh record highs

Thursday October 8, 2009

The dollar index continued to feel the pressure from all sides late in the week as investors pay more attention to the almost daily records being set by the price of gold and as commodity producer steal the limelight after Alcoa’s earnings were in the black. Investors felt warmer waters around their feet as stock index futures were buoyed by earnings, European bankers’ decisions to maintain low rates and a healthier showing for the American jobs market. The euro strengthened to $1.4745 as it creeps towards $1.50, while the Australian dollar saw a fresh wave of buying after the labor market shocked investors with an increase in employment.


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The Bank of England left rates at 0.5% today and said that it would direct the remainder of its £175 billion asset-purchase program towards driving economic recovery. The next monthly meeting at the Bank in November coincides with a quarterly economic review and outlook, which would be the perfect time to increase its plans. Today the pound leapt back above $1.60 to the ailing greenback. The euro eased against sterling to 91.76 pennies.

The ECB also left rates static at 1%, but governor Trichet sounded increasingly optimistic as he toned down prospects for weakness in the labor market based on a stronger recovery. Yet he managed to maintain the perspective that the recovery will remain gradual and that uncertainty remained elevated. The euro was also bolstered by a healthy increase in industrial output during August, which gained 1.7% after a decline of 0.9% during July.

U.S. jobless claims, which last week had much to do with souring the economic tone, surprised to the downside today when 521,000 initial claims for unemployment insurance were made through last weekend. In addition the number of continuing claims also declined beneath the predicted 6.1 million number. Both readings are bullish for recovery prospects and have helped add to equity market gains lifting the S&P 500 index 56% above its March low and above a price-to-earnings multiple above 20 times trailing earnings for the first time in five years.

The Australian dollar surged to another high for this move following a glowing jobs report in which 40,600 jobs were added. Expectations for losses of 10,000 positions were woefully off base. The Aussie rose to 90.07 U.S. cents. The Canadian dollar also added to commodity and mineral inspired gains rising to 94.10 U.S. cents today.


Andrew Wilkinson                                                                    

Senior Market Analyst                                                               ibanalyst@interactivebrokers.com       


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