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US Dollar Tumbles as Data Suggests NFPs Will Plunge at Least 500K, Budget Deficit to Hit Record $1.2 Trillion

Wednesday, 07 January 2009 20:58:49 GMT  |  Terri Belkas, Currency Strategist

The US dollar ended Wednesday lower versus the euro, Japanese yen, Swiss franc, and British pound amidst news that the US budget deficit is set to spiral higher this year and as data signaled that Friday’s US non-farm payroll (NFP) report could be deeply disappointing. According to the nonpartisan Congressional Budget Office (CBO), President-elect Barack Obama will face a $1.2 trillion deficit in 2009, which may ultimately end up being much higher considering that this forecast doesn't even take into account the probable implementation of a massive fiscal stimulus plan. Indeed, there is speculation that the plan will add up to $775 billion over two years, with $300 billion devoted to tax cuts for individuals and businesses, and politicians are far more concerned with being remembered as the ones who saved the US economy from a second Great Depression, rather than being budget hawks.  With the CBO also forecasting that the recession will extend "well into" 2009, echoing the sentiment of some Federal Open Market Committee members, and real GDP of only 1.5 percent in 2010, it's no wonder officials are striving to take drastic action soon.

Meanwhile, Challenger, Gray & Christmas reported that job cuts in the US rocketed 274.5 percent higher during December from a year earlier, the most since June 2001, led by the financial, chemical, retail, telecommunication and electronics sectors. Likewise, the ADP National Employment report showed the sharpest decline in private nonfarm employment since record keeping began in January 2001, with the index down by 693K in December. It is worth noting that the ADP report just underwent methodological changes in order to bring that numbers more in line with the ones issued by the government, so it will be interesting to see if this is indeed the case this week. Nevertheless, the data suggests that NFPs are bound to have fallen by another half million in the final month of the year, which could have dour consequences for the unemployment rate, which is forecasted to rise to a more than 15-year high of 7.0 percent from 6.7 percent.

Related Articles: US Dollar Could Dive on NFPs - Euro, British Pound May Also Face Bearish Data, US Dollar Weekly Forecast


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