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.
Senior Market Analyst