Dollar Loses Ground As Service Sector Cools

Dollar traders received another strong dose of economic data Wednesday morning, though it was not the tonic bulls were expecting. From the list of second-tier reports, the disappointing showing in the ISM non-manufacturing and factory orders gauges proved the most influential in a market where caution reigns.

Among the majors, EURUSD was showing some volatility, even though the pair still lacks direction. From overnight lows around 1.3320, the euro moved back to this week’s range resistance below 1.3385. Against the Swiss franc, the dollar was backing off of its own 1.2235 ceiling, though the 60-point slide from there was slow going. Toning back on volatility after the strong rise over the past weeks, GBPUSD held a 60-point range above 1.9720. Finally, USDJPY is struggling to find bullish momentum on yesterday’s break above 118.50.
Though market participants were able to turn a blind eye to yesterday’s housing numbers, today’s service-sector activity gauge was too important for growth projections to ignore. Over the past few quarters as the housing and manufacturing sectors contracted, optimistic economists and hawkish monetary policy makers have readily shifted the responsibility of strong growth onto the consumer’s shoulders. However, domestic spending in turn depends largely on the health of the service sector – predominately through employment. This makes the ISM Non-Manufacturing survey’s miss even more significant. Accordingly, the indicator reported a bigger than expected drop in March to 52.4, consequently the lowest reading for the report in over four years. While the gauge is still above the pivotal 50.0 mark, this presents further evidence that the economy will have difficulty in keep up the 2.5 percent clip of annual expansion through the rest of the year.
Elsewhere on the docket, the February factory orders number added to the running disappointment in the manufacturing sector. According to the Commerce Department, bookings rose 1.0 percent over the month – a modest number considering the 1.8 percent consensus and the 5.7 percent drop in demand the month before. The component data was fared far worse. Excluding transportation, factory orders fell 0.4 percent. At the same time, a measurement used to determine future investment had also slumped. The remainder of the notable data was used to adjust NFP speculation. The Challanger Job Cuts survey added to bullish forecasts with a 24.6 percent drop in sackings in March from a year ago. This was the sixth consecutive monthly contraction for the indicator. Still testing the waters with its new calculations, the ADP private payrolls number missed expectations of a 135,000-person addition with a 106,000 print. Another noteworthy event, that didn’t come with numbers, was Iranian President Mahmoud Ahmadinejad’s announcement that the 15 British sailors taken prisoner last week would be ‘pardoned’ and released. While the currency market was slow to react to the news, the confirmation of their safe return could settle geopolitical tensions and cut interest in carry trade unwinding.
The disappointing service activity and factory orders numbers competed with the Iranian announcement for US equity traders’ attention. Among the benchmark indices, the NASDAQ took the lead with a 0.24 percent advance to 2,456.33 at 15:35 GMT. Less momentous, the Dow rose 0.12 percent to 12,525.82 while the S&P 500 climbed marginally to 1,438.23. During the volatile market session, a few announcements and earnings reports produced outlier moves. Electronic retailer Circuit City disappointed its shareholders after announcing a fourth quarter loss brought on by store closings. In media-friendly auto sector, DaimlerChrysler CEO Dieter Zetsche remarked during a shareholder briefing that the firm was in talks with a few parties interested in the Chrysler branch.
Treasury yields pulled back on the news of a slower-than-expected ISM release as traders factor the darker growth outlook into their Fed valuations. By 15:35 GMT, the ten-year note was trading 7/32nds higher at 99-29 as its yield shed three basis points to 4.636. Bonds grew 9/32nds to 98-24 as their yields slipped 2 basis points to 4.829.