Recession fears will maintain dollar vulnerability in the short term, although heavy selling should still be avoided


The dollar was unable to strengthen back through the 1.47 level against the US dollar on Thursday and settled close to 1.4750 ahead of the New York opening. US new Jobless claims were slightly lower in the latest week at 349,000, although the number of continuing claims increased which suggests that it is more difficult to find new jobs.


The Philadelphia Fed index fell again to -24 in February from -20.9 the previous month and there has been is a very sharp decline over the past two months. The index is now at a seven-year low and will reinforce fears that the US economy entered a recession in the first quarter of 2008.  Leading indicators also fell for the fourth successive month with the data also suggesting recession conditions. The dollar dipped sharply following the data with lows around 1.4840.


These economic fears will increase pressure for more aggressive action by the Federal Reserve to cut interest rates and support the economy. The dollar will, therefore, also remain at risk in the short term as economic fears intensify. A key factor will be whether the fears are concentrated on the US or if there are greater concerns over the global environment. If international fears increase, then the dollar will be in a stronger position to secure defensive buying support.