eur news

US Dollar Continues Lower, can Retail Sales Give it a Much-Needed Boost?

Thursday, 11 October 2007 19:13:45 GMT  |  David Rodriguez, Currency Analyst

The US dollar tumbled on the day’s trade, setting fresh 31-year lows against the Canadian dollar and falling near record-lows against the euro. Forex speculators and sovereign banks continued selling the greenback, keeping consistent with overall market themes and pressing the US currency to new depths. Limited economic event risk provided little relief, but markets seemed hesitant to force further extension ahead of tomorrow’s key Advance Retail Sales report.

Euro bulls sent the single currency nearly 80 points higher through morning forex trade, while a later moderation in US dollar selling left the currency at $1.4218 through time of writing. The British Pound and the Japanese Yen were the only G10 currencies to lose against the dollar, however, as disappointing economic developments out of both countries sunk them against major counterparts. UK Pound Sterling shed 80 points to $20342 on a poor RICS House Balance Report, while the dollar added 0.40 to 117.63 Yen on an uneventful Bank of Japan interest rate decision.

Positive US economic data did little to slow dollar selling, but fresh unemployment and import price inflation data actually painted a positive picture for the currency’s macroeconomic outlook. The former showed that new unemployment claims fell sharply in the week ending October 6, signaling fewer layoffs in the domestic labor force. The latter demonstrated heightened import price pressures on account of the weakening US currency. In fact, the import price inflation rate hit its highest levels in over a year—likely raising eyebrows at the US Federal Reserve. The central bank cited a weakened dollar as a risk to overall price stability, and such confirmation of rising costs may inhibit the FOMC from cutting interest rates further through the coming months. Given that speculation over rates has been one of the primary drivers of US dollar weakness, this stands to support the currency against major forex counterparts. 

Domestic stock markets rallied strongly through early morning trade, but a sharp intraday reversal sent the Dow Jones Industrial Average 0.5 percent lower through time of writing. The remarkable shift was blamed on a downgrade in Chinese search engine Baidu.com, after which technology shares moved sharply lower led by Google and Yahoo. The NASDAQ Composite was down a substantial 1.3 percent an hour ahead of the close,

Treasury markets seemed broadly unperturbed by stock market volatility, with the 2-year Note adding a single basis point in yield to 4.16 percent, while the 10-Year traded at 4.67 percent. 

Written by David Rodríguez, Currency Analyst for DailyFX.com

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars