eur fundamentals

US Dollar Modestly Higher on 5% Drop in Stock Markets, 7% Plunge in Crude Oil

Thursday, 06 November 2008 05:15:11 GMT  |  Luis Gil, DailyFX.com

No surprises here: US economic data was all around disappointing, and yet, the US dollar ended the day modestly higher versus its counterparts.

In fact, the only major currency that was stronger than the greenback was the Japanese yen, and given the more than 5 percent decline seen in the US stock markets and 7 percent plunge in oil on Wednesday, it’s clear that risk trends continue to dominate the financial markets (see our latest forex correlations report for more). Looking at the data on hand today, ISM non-manufacturing fell more than expected to a record low of 44.4 in October from 50.2, with the drop below 50 signaling a sharp contraction in business activity. Business activity, new orders and backlogs all plunged while new export orders stagnated and employment tumbled to its own recent record low of 41.5. Meanwhile, the prices paid component tumbled to 53.4 from 70, suggesting that lower costs may allow businesses to pass the savings on to consumers. Nevertheless, this only adds to deflation arguments and puts the Federal Reserve in a very precarious position. With interest rates already historically low at 1.00 percent, the Fed has little room to maneuver from a monetary policy perspective.

Later this week, the US non-farm payrolls (NFPs) report is anticipated to show that the index fall negative for the tenth consecutive month in October, and the odds are looking in favor of a very disappointing reading given this morning's employment releases. First, Challenger Job Cuts surged 78.9 percent from a year earlier in October, marking the eighth straight month of growing job losses. Meanwhile, the ADP Net Employment Change plunged in October for the third consecutive month to match the November 2002 low of -157K. While these readings are not as bad as the levels we saw in mid-2001, they signal a clear deterioration in the labor markets that does not bode well for consumption trends going forward.

Related Article: US Dollar Forecast Depends On Risk Sentiment, NFPs Likely To Disappoint


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