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US Dollar Down on Mounting Consumer Pessimism

Tuesday, 27 March 2007 21:32:33 GMT  |  Rich Lee, Currency Analyst

The US dollar was widely lower following a rather lackluster consumer confidence number released in the New York morning.  According to the Conference Board’s index, consumer confidence dipped to 107.2 from a five year high of 112.5. Leading consumer pessimism were concerns about the recent housing sector weakness, equity benchmark declines and higher energy costs.  However, one component that lent a silver lining was the labor market component.  Rising to 30.5 percent, the share of consumers stating that jobs were plentiful advanced the highest since August 2001.  Although this fact should have lifted the dollar, the overall tone remained bearish as the headline index will likely keep the Federal Reserve considering a near term rate cut rather than a rate hike.  Subsequently helping the dollar lower in the New York session were comments made by Federal Reserve Bank of Chicago President Michael Moskow.  In a speech to the Central Party School No. 100 in Beijing, China, Moskow remarked just a week after the central bank’s decision that further economic data would be widely considered by central bankers.  This fact alone would dictate the Fed’s next monetary action as the central bank has now officially dropped the “additional firming” clause in interest rates.  “Whether policy will need to be adjusted and the degree of any adjustment will depend on the data we see in the months to come and how that data influences our forecast of the economy”.  However, the Chicago Fed chief did profess that inflationary pressures have been “stubbornly high” and continues to exceed 2 percent for the near term as labor markets remain tight.  The proof was in the pudding as the Fed’s preferred measure, the personal consumption expenditure figure, rose 2.3 percent annually in recent postings.  Ultimately, traders concentrated on the absence of a clear monetary bias, siding with the negative confidence report in taking dollar weakness.

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