US Dollar Dives On Rate Halt Expectations

The greenback saw red on the first trading session following the long holiday weekend as trading volume remained relatively thin.  With markets in several arenas still closed, participants remained on the wayside awaiting tomorrow’s open.  Nonetheless, rising conflict in Iran, higher oil and gold prices, and sentiment leading towards a halt in current U.S. tightening, weighed heavily on the dollar. Coupled with triggered stops in thin volume, the greenback was lower against the majors despite a better than expected net foreign securities report.  According to the U.S. Treasury Department, net foreign interest for U.S denominated assets rose to $99.5 billion while domestic investors purchased a net $12.6 billion in foreign securities. This created a net inflow of $86.9 billion, far above consensus estimates of $60 billion and more than enough to cover the previously reported trade deficit for the month. However, a lower Empire survey sparked earlier dollar selling as a declining figure lent to rate halting speculation.  Rising in the previous month, New York area manufacturing dropped below the consensus to a print of 15.8.  With expectations of a slightly smaller drop to 24.5, the figure added to dollar weakness.

Stocks were mixed ahead of the afternoon session as higher commodity prices depressed brighter earnings announced by both Wachovia Corp. and Citigroup. As a result, the Dow Jones industrial average was lower by 12.08 points to 11,125.57 while the S&P 500 index was incrementally higher by 0.72 points at 1,289.94. Shares of Citigroup climbed as earnings for the company rose 4 percent to $1.12 per share for the quarter.  Strengthening in its stocks and fixed income divisions, the company was able to beat estimates of $1.02.  The stock climbed 40 cents higher to $48.45. Separately, Wachovia Corp. boosted its quarterly profit by 7 percent on higher revenue and fee generation.  Earnings matched the Street’s estimates at $1.12 per share, not good enough for investors which took the stock lower.  Shares of Wachovia traded down 36 cents to $55.49.

Bonds broke the overall downtrend as buyer emerged on the session.  Reacting to a lower than expected manufacturing report, traders began to buy the 10-year higher on expectations Fed officials may stall following their May 10^th decision.  As a result, the yield on the benchmark note was lower by 3 basis points to 5.01 percent as the face value rose $2.50 per $1,000 face to 96 1/32.