Given the improvements in the US economy and widespread political and economic risks elsewhere, the US dollar is Thursday’s most unlikely loser, having given up ground against the Japanese yen, British pound, and euro.
Despite continued evidence of improving US economic conditions, the dollar fell against most of its counterparts for a variety of reasons in morning North American trade. US jobless claims dropped by another -10K to 332K, the lowest level in the past 12 months, providing yet another data point to suggest that the US recovery is picking up steam.
Still, the dollar, which over the past few weeks rallied in the wake of positive US data, sold off today as other factors dominated trade.
See related: The Only Hurdle Hindering the Dollar’s Rally
Most notably, USDJPY, which presumably should have been the prime beneficiary, stretched lower to 96.17 as the morning trade wore on. The currency market is clearly more concerned with the yen’s weighting on the pair, and traders have clearly turned their focus to the Bank of Japan (BoJ) confirmation hearings in Japanese Parliament.
Prime Minister Shinzo Abe's three nominees have all received approval in the lower house, but outspoken nominee for Deputy Governor, Kikuo Iwata, faces a serious challenge from the Democratic Party of Japan (DPJ) in the upper house.
As we wrote on Wednesday, "A rejection of Mr. Iwata may not only be barrier to Abe's plans for a more expansionary monetary policy, but may also be viewed as a political failure and could put further downside pressure on USDJPY."
A Favorite Carry Trade May Be Back on
Meanwhile, the Australian dollar (AUD) continued to set fresh highs, hitting 1.0392 in North American trade in the wake of much-better-than-expected employment data which revealed an astounding 71K new jobs created versus only 10K expected. There were, however, some questions regarding the accuracy of the data, and the AUDUSD pair traded off its highs by mid-morning European dealing.
Indeed, a Reserve Bank of Australia (RBA) official even suggested that there may have been a statistical error in this month’s calculations, though no further explanation has been given as of yet.
Regardless of the final adjustments in the labor data, today's report makes clear that the Australian economy remains resilient and is unlikely to require any further monetary easing for the foreseeable future. If the RBA keeps rates steady at 3%, the Aussie may regain its stature as the preeminent carry trade in the G-10 universe.
Short Covering Props Euro, Pound…For Now
Lastly, the British pound (GBP) skyrocketed in North American dealing, rising nearly 100 points as short covering through the 1.5000 barrier drove the GBPUSD pair higher.
The rise in cable also helped to lift the euro from its lows, and EURUSD found bidders ahead of the 1.2900 barrier. The pair may continue to consolidate on these short-covering flows, but if Eurozone data next week once again proves disappointing, the downward pressure will resume and EURUSD is likely to give up the 1.2900 figure.
By Boris Schlossberg of BK Asset Management
