The greenback rose broadly against major currencies on Thursday after the release of robust economic data, including the higher-than-expected retail sales and PPI data. The retail sales in November rose by 1.2% versus forecast of 0.6% whilst the PPI came in at 3.2% against the expectation of a rise of 1.5%. The strong data reduced concern that the U.S. economy will contract although Former Federal Reserve Chairman Alan Greenspan said later in the day in an interview on CNBC that he raised his view of chances of a U.S. recession to 50% from 30%.
New York Federal Reserve Bank President Timothy Geithner said new actions taken by major central banks will help to reduce risks that liquidity problems could affect the broader economy. Interest-rates futures showed the likelihood of a quarter-point cut next month is 100%. The chances the Fed will cut its benchmark rate by a half- percentage point to 3.75% in the next three months were 46%, down from 57% on Wednesday.
The single currency tumbled from 1.4737 to 1.4576 after triggering the stops below 1.4635/40 and 1.4605 on the strong U.S. economic data. However, talk of a European corp. bought 'good amount' below 1.4600 level limited the pair’s downside and euro pared some of the losses and closed at around 1.4627. U.S. currency rose from 111.41 to 112.46 against the Japanese yen and then traded trading sideways in New York as defensive offers at 112.45/50 to protect the option-barrier at 112.50 limited the pair’s upside.
U.S. currency found buying interest versus the Swiss franc at 1.1298 after the Swiss National Bank kept interest rates unchanged at 2.75%. SNB’s Roth said we are in comfortable situation and can take time to assess risks and SNB always study all options when deciding on rates. The pair rallied to 1.1451 later in the day on dollar’s broad-based strength due to robust U.S. economic data before retreating in New York.
The British pound weakened after an industry survey showed the RICS house prices was worsening, raising speculation the Bank of England may need to cut interest rates again after a reduction to 5.5% last week. The BoE's South West deputy agent Geoff Harding said the 'worst case' scenario for the UK economy in 2008 is the most severe slowdown the MPC has seen in its 10-year history. Harding also said there will be considerable slowing in UK consumer spending and predicts a UK housing market slowdown, but not a collapse. Cable fell from 2.0482 to a low of 2.0341 and rebounded to close above 2.0400.
Friday will see the release of Japan’s tankan report, German CPI, eurozone and German HICP, U.S. CPI, industrial production and capacity utilization.