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US Dollar Falls After August Consumer Confidence Misses Huge

US Dollar Falls After August Consumer Confidence Misses Huge

Christopher Vecchio, CFA, Senior Strategist

THE TAKEAWAY: USD Consumer Confidence (AUG) > 60.6 versus 66.0 expected, from 65.4 > USDJPY BEARISH

Despite equity markets sitting near four-year highs and labor market data that has turned higher in recent weeks, American consumers just aren’t feeling as confident about the economy anymore. The Conference Board’s Consumer Confidence reading for August showed that sentiment fell to 60.6 from 65.4, well-below the 66.0 expected. Indeed, with the print four standard deviation off (1.3 points), this represents an enormous miss from the expected print; and there was not one forecast provided that suggested that confidence would be this low, according to a Bloomberg News survey.

There were some interesting components of the sentiment report that are worth noting as well. 12-month inflation expectations increased to +5.9% in August from +5.4% in July, the highest such reading since March 2012. Curiously, while this could perhaps be evidence of a more informed consumer base (one that is well-aware of what the Federal Reserve’s expected liquidity injections will do), the same group of consumers also have become more bearish on stocks, with now 39.3% of respondents believing equity markets will be lower over the coming 12-months, versus 38.2% in July.

USDJPY 1-minute Chart: August 28, 2012

US_Dollar_Falls_After_August_Consumer_Confidence_Misses_Huge_body_Picture_7.png, US Dollar Falls After August Consumer Confidence Misses Huge

Charts Created using Marketscope – Prepared by Christopher Vecchio

In reaction to the data, the US Dollar dropped across the board, with the Australian Dollar, the Euro, and the Japanese Yen all posting gains in the minutes following the release. Of interest: the USDJPY spiked lower to 78.47 from 78.54 (a term used loosely here given the lack of volatility and thus ranges in the current environment), before rebounding to 78.52, at the time this report was written.

Poor US data typically bodes well for the Japanese Yen, as it usually translates into investors recalibrating their hedges from the US Dollar to the Yen amid rising expectations actions by the Federal Reserve. When the Federal Reserve intervenes, it results in lower yields (in US Treasuries) backing the US Dollar, making it less favorable. Accordingly, amid these fears of fiat dilution, the Yen becomes the favored safe haven over the Greenback.

--- Written by Christopher Vecchio, Currency Analyst

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