Mixed dollar news ahead of payrolls

The US dollar went on a rollercoaster ride on Thursday following the release of a barrage of economic data, before settling modestly lower prior to today’s all-important non-farm payrolls reading.
The greenback fell as low as $1.3018 against the euro, a drop of virtually a cent on the day. But by mid-session New York trading it had recovered to $1.2969, cutting its losses to just 0.4 per cent.
A surprise rise in US weekly jobless claims to 350,000, some 30,000 more than expected, provided the initial upset. The jobless reading was afforded greater prominence that usual, given its proximity to today’s March payrolls number.
The dollar’s descent was further fuelled by the February reading of the personal consumption expenditures index, Federal Reserve chairman Alan Greenspan’s preferred inflation measure.
Though the core PCE index rose 1.6 per cent in the year to February, in line with forecasts, the market chose to take this as a negative.
However the later release of the Chicago purchasing managers’ index sparked a rebound that allowed the dollar to claw back much of its losses to sit 0.5 per cent lower at $1.8887 against sterling and 0.4 per cent softer at Y107.15 to the yen.
The Chicago measure rose to 69.2 in March, its highest level since 1988, from 62.7 in February. Crucially the employment component jumped to its highest level since 1983, with the production and new orders elements also strong.
Sterling endured a rollercoaster ride of its own, weakening across the board only to recover to sit a fraction higher at £0.6866 against the euro and Y202.30 versus the yen. The initial sell-off was provoked by the Nationwide house price survey, which showed a 0.6 per cent month -on -month slide in prices in March, the steepest fall since June 1995. But a surprise pick up in UK consumer confidence, allied to the woes of rival currencies allowed the pound to recover.
The euro had to contend with the third stright monthly fall in eurozone business sentiment and a fresh surge in German unemployment to 12 per cent, damping talk of a eurozone rate rise.
The yen had started boldly, only to be undone by nervousness ahead of Friday’s quarterly Tankan business sentiment data.
But at least the Canadian dollar managed to firm 0.6 per cent to C$1.2101 against its southern neighbour as employment growth and factory output surged ahead, prompting speculation of a further rate rise as soon a May, even as January GDP growth undershot expectations.

Investors await tomorrow's US payrolls

The US dollar drifted slighly lower but remained rangebound against the major curencies on Thursday ahead of key US and Japanese data due out on Friday.
After hitting a five-month high of Y107.69 against the yen in the previous session, the dollar fell back in Asian trade as fiscal year-end dollar demand diminished after the Tokyo fixing. The dollar declined from Y107.35 to Y107.00 immediately after the fixing, but observers noted that the move was not as aggressive as in previous years and expected the new fiscal year in Japan to stimulate demand for dollars.
The beginning of the Japanese fiscal year in 2004 saw a marked increase in demand for foreign bonds by Japanese investors and suggests that any further dollar weakness in the very near-term should be utilised to establish long dollar/yen positions for a move toward the key Y110.00 level.
The market will focus especially on the non-farm payrolls data to look for any hint of inflationary pressure that could spark the Federal Reserve into tightening US monetary policy. The consensus forecast is for 220,000 more jobs to be added in the US in March, but analysts said that the figure is notoriously hard to predict.
Also released on Friday is the Japanese tankan report, which is expected to show business confidence has improved marginally. A strong showing could increase investor demand for Japanese stocks and support the yen.
By midday in London the dollar softened to Y106.90 against the yen, down from Wednesday’s New York close of 107.47.
The euro also made up some ground against the dollar, moving to $1.2960 by midday in London, up from Wednesday’s New York close of $1.2921.
However, the move had much more to do with dollar softening across the board than any interest in the single currency. Figures revealed that economic sentiment in the eurozone worsened, as inflation remained at 2.1 per cent for the second consecutive month, diminishing corporate and household spending . For the Euro area, the economic sentiment index for March declined to 97.4 from 98.8 in February.
Sterling was put under pressure as data from the Nationwide Building Society showed that in March UK house prices fell at their sharpest rate in nearly ten years. The pound moved £0.6893 against the euro, having closed in New York on Wednesday at £0.6875. Against the softer dollar however, the effect was marginal with sterling moving just 10 cents higher from Thursday’s close to $1.8800.

US Fed policy looks different to long term investors

To judge by the jitters that have hit the markets lately, the effect of Federal Reserve moves to raise short-term interest rates is clear and simple- that higher rates are bad news for both stocks and bonds.
It's as straightforward as that: When the cost of money goes up, business feels the pinch. So does the supply of funds available to bid for securities, and so do the animal spirits that set the mood of financial marketplaces around the world.
The rule is easy to remember, even as the effects of higher interest rates ricochet through the system in a bewildering variety of ways.
What's the strange, ultra-sensitive connection between rising U.S. interest rates and stocks in emerging markets at the far corners of the world? Well, for one thing, higher rates cast a shadow on the so-called "carry trade,'' the common practice of speculators who borrow in the money markets to finance purchases of such things as Chinese or Eastern European or Latin American stocks.
And so it occurred again- that from March 11 through to March 23, a stretch of a mere eight trading days leading up to and including the latest increase by the Fed in the overnight money rate, the MSCI Emerging Markets Index tumbled 6.4 percent.
The effect on more developed markets was similar, though less extreme. The Standard & Poor's 500 Index, dominated by big U.S. stocks, fell 2.3 percent.
That's not at all the sort of thing most conservative income- seeking investors have in mind when they venture into bonds. The damage can magnify many times over in the interest-rate futures markets and wherever else fast money trades in and out of bonds.

US rate hike speculation boosts dollar

The US dollar moved higher across the board on Monday, hitting a four-and-a-half month high against the yen, helped by expectations that US jobs data- which are due out on Friday will give the Federal Reserve more reasons to raise interest rates more agressively.
Speculative buying pushed the greenback to Y107.16 against the yen in late Asian trade, a level last seen on November 11 2004. The dollar settled back to Y106.80 by 11.00 GMT, up from Friday’s New York close of Y106.39.
The euro also moved lower against the dollar, trading at $1.2915 at 11.00 GMT, down from Friday’s New York close of $1.2956. Earlier in the session the euro had moved down to $1.2888, its lowest level since February 14. Similarly the dollar hit its highest level since February 14 against the Swiss franc, briefly trading at $1.2067, before pulling back to trade at $1.2030 by 11.00 GMT.
Sterling moved down to $1.8638 against the dollar by 11.00 GMT, having finished at $1.8696 on Friday, after hitting a low of $1.8595 earlier in the session.
Dealers said that sentiment had turned in the dollar’s favour following last week’s data showing core US consumer prices rising at their fastest rate since 2002. The Federal Reserve said that it was prepared to rise interest rates faster than the current ‘measured’ pace if inflation heats up.
All eyes therefore will be on this week’s economic news from the US that culminates in Friday’s non-farm payroll data, which is expected to show that the US economy created 220,000 in March, for signs that the economy is overheating.