Dollar Falls Further as ISM Manufacturing Fails to Stem Declines

The dollar continued its losing ways through turn of July trade, as major counterparts breached significant highs against the downtrodden Greenback. The British Pound scaled to its highest since October, 1987 at $2.0176, the Euro fell just short of all-time highs at $1.3640, while the Japanese Yen bounced to Y122.10 through afternoon New York trade. Relatively strong economic data was not enough to spark a USD bid, with the morning?s ISM Manufacturing report showing the best sector growth in 12 months. Instead, falling bond yields stole headlines as the price of the 10-year US Treasury Note rose to its highest since early June.

Fundamental data was limited to the typically market-moving ISM Manufacturing report. An above-consensus headline print did little to ease the dollar?s woes, however, with the ISM Prices Paid index falling to its lowest in three months at 68.0. Short-term interest rates inched lower, with the 3-Month London Interbank Offered Rate (LIBOR) now even with the dollar?s 2-year swap rate. The flattening rate curve is undoubtedly bearish for the dollar, with investors now betting that domestic interest rates will remain exactly unchanged through the coming two years of trade. Given that currencies tend to move on shifting rate differentials, growing yields in Europe and in other major trading counterparts leave the dollar without a key pillar of long-term support.

Domestic equity markets proved much more receptive to the data, with the Dow Jones Industrial average up 0.69 percent to 13,501.54 at time of writing. The broader S&P 500 index likewise added 11.35 points to 1,514.70, while the tech-heavy NASDAQ Composite Index was the largest percentage gainer at 0.88 percent to 2,626.04. The non-inflationary jump in the ISM Manufacturing index provided the necessary boost to move prices at the open, while later news of telecom industry takeovers served to keep markets bid. AT&T Incorporated agreed to buy “Cellular One” provider Dobson Communications Corp for $2.8 billion. Apple Corp?s infamous iPhone likewise sparked moves in the telecom industry, with Research In Motion up on a recommendation that investors buy the stock on a derivative play in the industry.
Fixed income markets moved higher on the day, with the 10-year Treasury Note 5/32 points improved at 94 and 9/16. This left yields slightly above key psychological support at 5.00 percent, with a break to likely bring further gains in domestic bond prices. Continued drops in yields will only add to dollar selling, with the Greenback grasping for support on its continued slide against major trading counterparts.