There were some surprises from the Dollar, both in terms of the US economic data and in the market’s reactions to them. New Home Sales fell to their lowest level in 13 years: Turnover in 2007 was down by more than a quarter on the previous year and prices were 11 per cent lower than December 2006. Yet the news failed to undermine the Dollar. There was a similar lack of reaction when Durable Goods Orders came in much more strongly than forecast on Tuesday. Wednesday’s 50 basis point interest rate cut by the Fed did prompt some selling that tailed off towards the end of the session.
Employment agency ADP’s Employment Change report on Wednesday pointed to a strong increase in Friday’s Non-farm Payrolls but investors were doubtful. Their scepticism was justified when the official figure showed a loss of 17,000 jobs. It was a much worse outcome than the 70,000 increase that everyone had been looking for and even then the Dollar remained unmoved.
To be fair, the Dollar did lose more than a cent against the Euro over the course of the week but that was a result considering all the bad news it had to contend with. By the weekend some analysts were openly wondering whether this new-found resilience signified a brighter future for the US currency.
For Sterling the economic data were a mix of good and bad news. Nationwide’s house price index was lower but not much lower. The CBI’s Distributive Trades survey dropped another four points but it had been expected to fall further. Gfk consumer confidence, likewise, was lower than before but higher than forecast. Although the manufacturing Purchasing Managers’ Index was lower it still managed to squeak in above the divide between boom and bust at 50.
Taken together the UK ecostats were vaguely depressing rather than downright bad. The data were not dire enough to do any major damage, they just left a bad taste. In the end though that was enough to spark a sell-off on Friday as investors refocused on this Thursday’s meeting of the Monetary Policy Committee and its expected decision to lower UK interest rates by another 25 basis points.
The Dollar’s recent performance, if it keeps up, could be a sign that investors are no longer so jaundiced about it. The Euro’s repeated failure to make any impression on the psychological barrier at US$1.50 certainly supports that notion and Sterling faces a similar challenge at $2. Buyers of the Dollar should hedge at least half their requirements, selling Sterling forward to match expected payment dates. Judicious stop orders should be used to protect against the relapse that is still a possibility.
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