The dollar is under pressure to end the week after words from a
powerful investment house jolted investors expecting further decimation
of the single European currency into a spin by warning that the next 10
cents for the euro is more likely on the upside than the downside. An
unexpected jump in retail sales has provided a lifeline to an ailing
dollar on Friday morning, but in my mind the die has been cast in that
the rationale for remaining short the euro has just become more
perilous than ever.
U.S. Dollar – Despite predictions for a February
slide in U.S. retail sales, the out turn was a healthy 0.3% rise as
electronics sales jumped. Ex-autos, sales rose 0.8% proving that winter
blizzards and car recalls failed to dampen the spirits of consumers. A
smaller than forecast decline in job losses last week may have also
played a role, while one could equally argue that rising confidence
among newly hired workers bodes well for the March employment report
amid a spring thaw. We'll also get the latest reading for consumer
confidence later today from the University of Michigan in its sentiment
survey, which is predicted to rise from 73.6 to 74.0.
The dollar index is lower after Goldman Sachs predicted that dollar
strength is tomorrow's story, but that its performance against the euro
is more likely to result in a medium term revisit to $1.45 so long as
it remains above $1.35. The dollar also weakened on viable rumors that
President Obama was about to nominate San Francisco dove Janet Yellen
as vice chairman at the Federal Reserve. She recently stated that if
she could vote for negative rates, indeed she would.
Euro – Earlier the euro reached $1.3796 ahead of
U.S. retail sales and has subsequently pulled back to $1.3754. It
remains to be seen which line of argument is stronger: The premise that
the euro-bashing has gone too far remains my favorite, while I still
see rising yields as a story supportive of the dollar in the second
half of the year rather than today. The euro was earlier supported by
surprising strength in data from January released this morning
indicating a far healthier picture for industrial production than
previously believed. In itself data showing a 1.4% annual increase in
production compared to a forecast decline of 1.6% has radically shaken
the sleepy Eurozone bears.
British pound – The pound is also much firmer
against the greenback although the reason is possibly more driven by
abatement to conviction surrounding a strengthening dollar today. Yet
two sterling bullish events have transpired and the pound stands at
$1.5135 post retail sales data from the States. First of all, a new
political opinion poll apparently indicates less likelihood of
stalemate as voters are warming to the Conservatives line of thinking.
Second, a survey from Acadametrics claims a 1.9% increase in British
home prices for February. However, the report is at odds with just
about every other piece of data including bank lending and spotty data
received from increasingly thin housing markets and I'd have to
conclude that this report is merely a convenient peg on which to hang
today's sterling performance. The euro today buys a near unchanged
90.80 pence.
Japanese yen – The dollar surged against the yen
after the retail sales and reversed its earlier losses. The yen is fast
becoming the world's whipping boy once again and its Prime Minister
Hatoyama recently reflected that weakness among Japanese employers and
manufacturers hardly sits comfortably with the high value of the yen.
Japanese Finance Minister Kan also commented to the diet that he was
prepared to sell the domestic currency in the event that the yen moved
sharply adding further pressure to exporters while reducing the cost to
importers and pressuring domestic prices. Next week the Bank of Japan
concludes a two-day meeting and is tipped to expand a ¥10 trillion fund
used to provide loans to banks as a means to encourage customer
lending. The dollar is pushing on ¥91 this morning while the euro made
gains to ¥125.
Aussie dollar – The Aussie failed earlier to
sustain a breach above an intra-week peak at 91.93 U.S. cents and
dealers used the stronger than forecast retail sales data as a reason
to bag profits on the Aussie, which subsequently eased to 91.65 cents.
Canadian dollar – The loonie took a step closer to
parity this morning spurred by a 20,900 gain by employers in a February
employment report. The rate of unemployment declined to 8.2% helping
drive the Canadian currency to 98.48 at its zenith this morning. It has
subsequently pared gains to stand at 98.29 cents. Today's high marks
the strongest reading for the Canadian unit since July 2008.
