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The US dollar rose to a four-week high against the euro, in European morning trade, pushing the Single Currency to a low of 1.3165. The dollar resumed its upward path in the European trading yesterday, as it came out of the clutches of 1.33 levels on optimism that tonight’s US jobs report will reinforce the prospect of healthy growth and higher interest rates in the next few months.
The US currency overcame a temporary drop, in the US session, triggered by a 43,000 surge in the number of people filing for unemployment benefits last week to 364,000. With the market increasingly focused on the structural twin deficits of the US, cyclical economic data has largely left the market cold in recent months.
But payrolls data, a key guide to the strength of the US recovery, has retained its power to move the market. Traders also found reasons to sell each of these other major currencies.
The eurozone presented a double salvo of downbeat news, with German retail sales falling 2.5% month-on-month in November, against expectations for a 0.2% drop, and French consumer sentiment fell to a 12-month low.
Sterling was also under pressure after December UK services PMI data undershot expectations, although the reading of 54.9 still pointed to solid growth.
The yen was caught up in a general trend of Asian currency weakness caused due to fading expectation of any significant revaluation of the Renminbi.
Looking at the sporadic fall, we suggest the importers to hedge their exposures partially. The exporters can keep trigger levels to hedge their short to medium term exports positions.
With its new found strength, the dollar climbed to a three-week high against the euro and the yen on Wednesday, after the minutes of the U.S. Federal Reserve's latest meeting suggested the central bank might step up the pace of interest rate rises. On the data front, the Institute for Supply Management's non-manufacturing index rose to a better-than-expected reading of 63.1 in December, against the estimates of 61.0.
The euro has sold off for the fourth consecutive trading session against the dollar, though losses were limited as current levels represent the previous lows that were seen in early December.
Service sector data from Europe confirmed expansion, but the slow pace of growth put a question mark on the euro strengthening further.
Rising from six week lows, the British pound vaulted almost 170 pips higher on better than expected readings of improved industry construction. Further downside pressure may come from earlier speculation that the Bank of England is nearing the end of their monetary tightening crusade.
Testing 105 figure, yen regained momentum as continued bullish speculation returned to the markets.
Also the talk of Yuan revaluation never seems to die down as China central bank looks to contain the Money supply levels to 15%, it would certainly impact the future dollar movements.
The Dollar received a further boost late last evening when stronger than expected factory orders and hawkish comments from the Fed shook the markets and traders out of their ‘dollar selling spree’. The factory orders came out at 1.2 percent when the consensus was only for a rise of 0.9 percent coupled with the disappointing jump in the German unemployment figures to 10.8 percent from 10.4 percent was sufficient to pull the single currency more than a cent lower to trade at mid $1.32 levels.
The Fed on the other hand released its minutes from its latest FOMC and comments from the members who now consider productivity gains to be slowing down and inflation risks higher due to rising labor costs and steep energy prices have signaled that further tightening would continue in this year as well.
Across the Pacific, Yen went past the 104 levels but the major brunt of the fall was borne by Sterling, which fell to mid 1.88 levels as a weaker than expected manufacturing PMI did not paint a rosy picture of the economy coupled with rumors that the interest rates in UK had peaked at their current levels of 4.75 percent and that the Bank of England may in fact look to cutting rates.
The markets keenly focus now on the payrolls numbers scheduled for release this weekend to get further insights into the state of the economy.
The Dollar bulls started the New Year on a high, pulling the dollar higher against the majors. Traders made the most of lack of volumes in the markets, helping the dollar gain close to 0.8 percent against the euro briefly touching the 1.34 levels and hovering around the 1.9040 mark against the sterling.
Better than expected ISM December manufacturing figures triggered off the dollars rally, as the figures confirmed the robust economic outlook for the year.
With the markets resuming full strength the US currency gave up most of the gains it had accumulated since early trades.
Euro moved back to trading in the mid 1.35 range with cable just under 1.91, and yen was back under 102.70 resistances after an initial dip to 103.45.
The U.S. economic data have largely taken a backseat, as focus remains on the dollar's bigger structural problems - its trade and budget gaps.
Oil prices moved lower yet again to a low of $41.25 pre barrel winter demand from the US remained mild.
Gold prices took the brunt of the dollar rise and declining oil prices falling to a two month low.
With the economic releases calendar back in full swing with the onset of the New Year, expect the markets to move in tandem with the developments in the week ahead.
The Euro held on near its record levels, even as lower trading volumes kept analysts confident of continuing dollar weakness in 2005. Structural imbalances in the US economy and slower than expected growth in jobs creation have driven the dollar lower against all the major crosses last year.
With markets shortened on Friday, ahead of the New Year and no data released, it was due to some last minute technical adjustment that pushed the Euro, which had risen to a high of 1.3670 in the Japanese session, to close the year at 1.3550.
The other European major, the Pound- remained mired below the 1.92 levels, trying to recover from the foiled expectations of any rise in the interest rates.
Elsewhere in the east, Yen finally sneaked through to close the year at 102 levels as Japanese officials indicated that they might let the Yen gain without much intervention.
As demand for U.S. assets wanes and speculation for the US officials to favour a weaker currency to help boost exports; we expect the non-dollar currencies to continue their bullish march in the New Year as well.
We suggest importers of such currencies to buy on every lower level while exporters can afford to hold on for some more time.
