Mixed Data Balances The Dollar

Looking to the majors, most of the dollar action on the charts came in the overnight sessions.   For the euro-backed pair, a 75-point decline to 1.2640 heightened the awareness of a few traders looking for a final range-break.  The same was true in the USDJPY as a new high was made for the week when the day’s 70-point run from its low topped out at 118.20.  The distance the dollar covered against the franc seemed to be the most significant after a 115-point rally took the pair all the way to 1.2570.  Finally, the British pound gave up another 150 points to the dollar to 1.8635, though the declines are becoming less momentous.

Like yesterday, today’s economic calendar was populated with a number of indicators; but also like the previous session, the numbers were generating little enthusiasm as volatility drivers.  The North American session opened to August reports of income, spending and inflation.   While this was a broad mix of data, the various reports were known to be less than market moving.  For the consumer, both income and spending were cut in August.  Earnings growth slowed to 0.3 percent, its slowest pace since November and in line with predictions.  Subsequently, this led Americans to control their spending habits with a sizable drop over the month to a 0.1 percent pace of growth, following the 0.8 percent rate just the month before.  Given the moderation in net payrolls for the past few months’ reports, a contraction in pay was in order.  Furthermore, US consumers were likely to accept the slower growth in income at the expense of fewer purchases on their part.  Another major issue for American shoppers is the steady deflation in housing prices which is quickly removing access to home equity for the average consumer.  Looking ahead, a short-term rebound in spending could be in store even as employment and compensation trends look to be unchanged.  Recently, gasoline prices, both a drain on pocket books and confidence, dropped off their highs to their lowest levels since March.  In other news, the PCE figure for the same month was tuning the market in to inflation trends.  Core inflation over the span of the month notched higher to 0.2 percent growth; but the annual pace was the more interesting change as it rose to 2.5 percent, its quickest clip in 11 years.  While other price gauges have lost a lot of steam, this group of data suggests that inflation is still an ongoing issue for US policy makers. 

Even after all this data passed through the market, fundamental positioning was still in play as a revision to the University of Michigan confidence read and a new regional factory activity indicator kept up interest in the dollar.  The final read of the September U of M confidence survey unexpectedly jumped to its highest level in five months.  Compared to the initial report of 84.4, the second release received a hefty boost to 85.4 as more participants were responding to the continued slide in the price at the pump.  The last indicator for the week was the Chicago regional purchasing managers’ index for September.  A good note to leave the dollar off on, business spending in the region grew to its highest level since April of 2005.  Sifting through the components, the reason behind the strong headline read was quickly apparent.  Levels of production, new orders and inventories all hit recent highs.  However, there were a few negative implications for the dollar within the data.  The prices paid component dropped for the third consecutive month, relieving inflationary pressures.  And taking on predictions for next week’s NFPs, the employment sub-gauge slipped from 55.1 in August to 50.8 for current month.

While US equities were still camped out near all-time highs, bullish momentum has yet to materialize into a solid break of the psychologically limiting level.  By 14:30 GMT, the SP 500 was leading the mixed trading day with a 0.1 percent decline to 1,337.87.  The Nasdaq Composite was marginally down to 2,269.31 while the Dow was up a fraction to 11,720.93.  Sitting high atop the market movers list this morning, Research in Motion was stealing stock headlines.  The maker of Blackberry handheld devices reported a huge 27 percent jump in quarter profits sending shares 20 percent or $17.26 to $103.26.  From the automotive industry, Ford Motors was an active mover.  Shares dropped 0.8 percent for a $0.07 decline to $8.09 after the company said in a release that it would close 16 plants in North America and fire 30,000 employees.

Government debt markets waded through the indicator intense day to focus in on the eleven-year high in the government’s favored inflationary gauge.  Ten-year treasury notes slipped 8/32nds of face to 101 25/32nds with yields advancing 3 basis points to 4.65 by 14:30 GMT.  Thirty-year instruments followed suit with a 16/32nds drop to 95 15/32nds while its yields were also higher by 3 basis points at 4.79.