Dollar Hits Four-Month Low Despite Inflation Boost

The dollar index put in fresh-four month lows Thursday morning as traders across the majors transferred their funds into currencies with more promising interest rate outlooks. However, the move was fairly small and light on fundamental backing, suggesting larger levels of support would hold until key data could generatemomentum needed to spell out bigger moves.

For the basket-weighted dollar index, a clear break below 82.50 was extended to 82.25 where price action carved out a swing low back in early December. Back in the majors, EURUSD easily cleared the 1.3485 high from March 11th 2005, though the psychological 1.35 barrier proved too much for the slow 65-point advance. From an overnight high, USDCHF dropped 115 points to 1.2135 before the pair began to correct higher on the slow dollar rebound. The British pound stopped short of putting in new highs, but proved 1.98 was a serious level of resistance after holding back volatile price action. Finally, USDJPY broke free of a 30-point congestion area below 119.50 shortly before making a spike low at 118.80.
Though a number of the majors were butting up against significant levels of dollar support, there was a notable lack of the top tier fundamental data that typically instigates big moves and breakouts. For the morning, the simultaneous release of the import price index and initial jobless claims seemed to offset each other with their big changes. However, a closer look revealed the mixed sentiment actually came from wholly unimpressive results. First time claims for unemployment benefits unexpectedly jumped by 19,000 filings to 342,000 in the week ending on April 7th. While this was the highest level in eight weeks, it doesn’t foreshadow a sharp drop in April NFPs just yet. Officials have said that the turn of the quarter, Easter holiday and schools’ spring breaks have made it difficult to adjust the report, so the number should be taken with a grain of salt. Moving from employment to inflation, the first of the Labor Department’s three price gauges surprised the market with a bigger than expected 1.7 percent jump. In turn, the annual gauge advanced to a 2.8 percent, it highest level since August. On the other hand, this data too was played down as most of the pressure was measured in the energy sector. When the 9.0 percent jump in petroleum prices was excluded the import gauge put in a far more constrained 0.3 percent rise for the month.
Looking ahead, price action is likely to remain tethered to its dollar-support levels at least until tomorrow’s round of data exacts its influence on the market. Though the reports scheduled for release are not among the top market-movers, they will be a big step up from today’s calendar. The producer price index will give a different angle on national inflation before the all-important consumer-level report hits the wires next week. The February trade report will hold more political undertones as politicians and economists look for additional evidence to argue against or for the growing protectionist agenda in Washington. In all probability, though, the University of Michigan’s consumer confidence survey for April will be the guiding light for the day since any clarity for domestic spending is always welcome by dollar traders.
Equities were cautiously treading higher Thursday morning as investors took in mixed earnings and sales numbers. The NASDAQ Composite traded 0.3 percent higher at 2,466.72 by 15:40 GMT. By the same time, the S&P 500 rose a modest 0.1 percent to 1,440.35 while the Dow bounced 0.07 percent to 12,492.91. With earnings season entering full swing, Research In Motion’s numbers gave some credence to analysts modest expectations for activity in the first quarter. The mobile phone maker’s fourth quarter sales numbers printed below Wall Street’s predictions sending shares plunging $11.22 or 7.7 percent lower to $134.80. Over in the sub-prime sector, Nova Star Financial announced that it was considering alternative strategies for the future and was open to being bought out. Shares of Nova rose 6.8 percent or $0.34 to $5.37.
The combination of today’s inflation and employment reports couldn’t unsettle Treasury traders who await data that may considerably alter the course of monetary policy over the coming months. By 15:40 GMT, the ten-year note was trading only 1/32nd higher at 99-07 as its yield lost a basis point to 4.724. Longer-termed bonds were up 2/32nds to 97-19 though their yields were unchanged at 4.904.