The Dollar extended losses against the Euro, Yen, and Pound as data continues to show a US economy that will need the support of low interest rates from its central bank.
While there was a surprise in the number of people filing jobless claims fell by 29K to their lowest since August 2008, it may have been due to some auto manufacturers keeping their plants open for the summer months. That tweaked the seasonal adjustment factor as usually these plant closing tend to raise the number of claims.
Still the better labor market releases contrasted with a sharp slowdown in the NY Empire manufacturing index, which slid to 5 in July from 19.6 in June. The Philly Fed manufacturing index also declined, falling to 5.1 from June's 8.0. These leading indicators confirm what we saw from the June ISM manufacturing index, which showed manufacturing is coming back down to earth following the increase in activity as a result of the inventory restocking process.
In today's industrial production report, we saw output rose 0.1% in June, following a 1.3% increase in May and the capacity utilization rate remained at 74.1%.
In a look at inflation pressures the producer price index fell 0.5% for the month of June, though the core PPI rate did rise, albeit a tepid 0.1%. The change in the headline rate came about then as a result of the drop in energy prices.
The Fed minutes showed that policy makers dimmed their view of the pace of the US recovery, and with low inflation (and some observers worried about deflation), it will mean interest rate will remain at near zero into next year. That makes the Dollar less attractive as yields on Treasuries will continue to fall. The longer time frame that rates remain near zero also means the Dollar will be used as a funding currency in carry trade. This could explain today's drop in the USD/JPY pair.
Therefore, in today's action we saw the Dollar sliding. Europe's sovereign debt situation seems to be easing and the Euro benefited from a successful auction of Spanish debt. The EUR/USD is now at a 2-month high.
A weaker US economy is not good news for all of the greenback's rivals especially as Chinese data came in softer than expected overnight. Those currencies linked to global growth like the Australian and Canadian Dollars suffered in today's trading.