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USD - America's currency opened strong last week, but steadily lost ground throughout the week, before gaining again at week's end vis-à-vis its major world counterparts, as a mixed bag of economic indicators and US corporate earnings releases, left both US equities and the dollar confused and undulating. An improvement in retail sales (-1.5% in Sep. vs. -2.1% exp.), coupled with an up-tick in inflationary pressures (CPI: 0.2% in Sep. vs. 0.1% prior), conspired with the release of the 9/23 FOMC minutes, which intimated that the Fed's policy bias may be shifting from a risk of growth towards a risk of inflation. The greenback weakened as investors moved into higher-yielding assets, causing the DJIA to break the psychologically and technically significant 10K level for the first time in over a year, amid a string of positive earnings releases from Goldman Sachs, Google, and others. Nevertheless, a high unemployment level in the US, evidenced by initial jobless claims remaining persistently above the "recession-level" of 500K (514K for 10/10 vs. 524K prior) gave market participants little over which to cheer. Moreover, an unexpected drop in the University of MI Consumer Confidence Index (69.4 in Oct. vs. 73.5 prior) coincided with the release of Friday's disappointing Q3'09 results from Bank of America and General Electric, exacerbating "safe haven" flows back towards the USD. Currency markets will likely continue to look towards risk sentiment as the catalyst for price action, which may amount to continued strength for the safety-linked USD in the near-term, as markets continue to digest economic data. However, in stark contrast, the closely-watched NAHB housing market index is expected to increase for the fourth consecutive month in October, which is likely to encourage an improved outlook for the world's largest economy as policy makers see the nation emerging from the worst recession since the Great Depression.
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