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US Dollar Surges versus EUR, GBP, JPY after Strong February Data

US Dollar Surges versus EUR, GBP, JPY after Strong February Data

Christopher Vecchio, CFA, Senior Strategist

THE TAKEAWAY: USD U. of Michigan Confidence (FEB F) > 77.6 versus 76.3 expected, from 76.3 > ISM Manufacturing (FEB) > 54.2 versus 52.5 expected, from 53.1 > ISM Prices Paid (FEB) > 61.5 versus 57.0 expected, from 56.5 > USDOLLAR BULLISH

After mixed US economic data this morning – highlighted by contracting Personal Income (JAN), in no small part thanks to the payroll tax hike, resulting from the fiscal cliff deal – the US Dollar has surged after the US cash equity open amid strong significant confidence and manufacturing data.

Just ahead of 10:00 EST/15:00 GMT, the U. of Michigan Consumer Confidence (FEB F) report showed that sentiment rebounded sharply, to 77.6 from 73.8 in January, suggesting that Americans are unfazed by the budget sequestration set to hit today. Why unfazed? Confidence dipped in December, ahead of the January 1 fiscal cliff/slope; no such concern has developed thus far. This bodes well for future consumption trends, the most important portion of the headline GDP figure.

At the top of the hour, the ISM Manufacturing (FEB) report was released, and showed a continued improvement in the business outlook for the United States. The index expanded to 54.2 from 53.1 in January, suggesting that the pace of manufacturing growth is accelerating. This is first reading above 54.0 since April 2012, and is the strongest output since June 2011. Like consumers, businesses continue to thumb their nose at the political deadlock current encapsulating US politics, which in reality is a strong sign for growth down the line.

There were some interesting developments in the ISM’s report, perhaps best exemplified by the Prices Paid subcomponent, which expanded to 61.5 from 56.5, suggesting that price pressures are starting to increase at the factory gate. The Production subcomponent surged to 57.6 from 53.6 in the month prior, while the New Export Orders subcomponent improved to 54.0 from 50.0, despite the stronger US Dollar in recent months. The only real negative? – the Employment subcomponent, which fell to 52.6 from 54.0, suggesting that labor market momentum might be slowing.

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) 5-minute Chart: March 1, 2013

US_Dollar_Surges_versus_EUR_GBP_JPY_after_Strong_February_Data_body_Picture_1.png, US Dollar Surges versus EUR, GBP, JPY after Strong February Data

Charts Created using Marketscope – Prepared by Christopher Vecchio

Following the release, the USDOLLAR rallied from a session high of 10478 to a fresh session high at 10492, at the time this report was written. Of the subcomponents of the USDOLLAR: the EURUSD fell from 1.2990 to as low as 1.2967, before rebounding to 1.2983; the GBPUSD fell from 1.5014 to as low as 1.4984, before rebounding to 1.5007 (this is the lowest exchange rate since July 2010); the AUDUSD fell from 1.0204 to as low as 1.0192, before rebounding to 1.0195; and the USDJPY rallied from 92.76 to as high as 93.15, a new session high where it remains.

--- Written by Christopher Vecchio, Currency Analyst

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