The US dollar fell sharply across the majors as US data was broadly disappointing, adding to the pile of evidence suggesting that the nation is in the midst of recession.
It seems that the announcement of yet another Federal Reserve lending facility - this time to support consumer and small business loans - and additional bailout measures for Fannie Mae, Freddie Mac, and Ginnie Mae totaling $800 billion didn’t encourage investors. Instead, traders focused on the revision of US GDP for the third quarter down to -0.5 percent compared to the advance reading of -0.3 percent, which signals the worst US economic slowdown in seven years. The decline was led by a 3.7 percent drop in personal consumption, which marks the sharpest contraction since 1980, as the major deterioration of the US labor markets, stagnant wage growth, and a reduction in the availability of credit takes its toll. Meanwhile, the S&P/Case-Shiller Home Price Index tumbled 16.55 percent during the third quarter, which is the worst decline since recordkeeping began in 1988. On the other hand, the Conference Board’s consumer confidence index climbed to 44.9 in November from a record low of 38.8. However, since this latest result is still the second-lowest since 1974, the rise didn’t inspire too much confidence of a rebound in consumer sentiment. There was something encouraging about today’s dollar decline: the moves suggested that fundamentals are starting to play a role in forex market price action once again. Indeed, there are signs emerging that the financial markets are stabilizing a bit since risk trends have lost some influence on the greenback. Previously, any sort of losses in equities would trigger gains for the US dollar amidst flight-to-quality, but with the Dow Jones Industrial Average barely ending the day higher and the greenback gaining 0.85 percent versus the euro and 1.98 percent against the British pound, it is clear that this relationship has faded a bit. It remains to be seen if this trend will hold, but with upcoming US economic data likely to be disappointing, downside risks may linger for the US dollar. US Durable Goods Orders are forecasted to have dropped 2.7 percent in October and excluding transportation is anticipated to fall negative for the second consecutive month. Indeed, Boeing orders - a good leading indicator of this headline reading - slumped in October to 14, down from 41 in September. Meanwhile, Personal Income growth during the month of October is anticipated to rise a tepid 0.1 percent while Personal Spending is expected to fall by the most since September 2001 at a rate of 1 percent. Such results would only create additional potential for fourth quarter GDP to be just as disappointing as the third quarter readings, and will likewise lead to increased speculation that the Federal Reserve will cut rates by as many as 50 basis points during their next meeting on December 15-16.
Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.