Dollar Relegated To Congestion Despite Productivity Boost

Fundamentals hit a modest mid-week peak in the New York session Wednesday; but the combined efforts of policy official’s comments and a jump in worker productivity could not fuel volatility in the underlying greenback.

Despite the lack of action in the dollar, EURUSD managed a 50 point rally to 1.3025 from Asian session lows with the help of German data. The USDCHF was also able to swing 50 points, but the move was trimmed by a range that has formed above 1.2380 support. Arguably the most tangible congestion came on behalf of the British pound which has stalled 20 points below resistance flagged at 1.9750. Finally, the battle between the prominence of the carry and possibility of official intervention has allowed the USDJPY to rebound 85 points from key support around 120. While action in the currency market was rather dry, position traders had another volley of data to consider in their dollar valuations. The Labor Department reported productivity among US workers rose 3.0 percent in the fourth quarter, following a revised 0.1 percent contraction. At the same time, the labor cost index slowed from a 3.2 percent pace of expansion to 1.7 percent. Together, these numbers confirms the Fed’s neutrality and suggest wages will be less of a threat to overall inflation that original suspected. However, looking at the data from different angles challenges such a conclusion. A particular look at the wages sub-gauge reports a significant 4.8 percent jump, spurred by a jobless rate near a five-year low and the initial exit of Baby Boomers from the work force. Also, the annual numbers are fully contradicting their quarterly equivalents. Through 2006, productivity slowed from 2.3 percent to 2.1 percent growth, the fourth consecutive deceleration. Conversely, labor costs surged 3.2 percent through the same period, the biggest pick up since 2000. When Alan Greenspan was Chairman of the Fed Reserve, he took the firm stance that inflation would be tamed by a boost in productivity. Without this natural domestication in price growth, the Fed may have to step in should round of quarterly data reveal the persistence in the unwanted conditions.
Though the productivity data provided a little pick up for the dollar in the hours after its print, other factors were keeping the unit steady. In the commodities market, crude prices continued their steady march higher. Safe from $60 per barrel crude for another day, prices dropped $1.13 by the Wednesday session close to $57.75 after data showed inventories grew last week. Elsewhere, officials were exacting undue influence on the markets. Treasury Secretary Paulson sat in on his second day of testimony, though his effect on the currency market was centered on the repetition of his comments yesterday that the yen reflects fundamentals. More active at the helm, Philadelphia Federal Reserve President Charles Plosser offered up his outlook for the economy. Plosser reported, “growth prospects of the economy are improving” which could in turn spur inflation. Now traders will turn to Friday’s G-7 meeting on Friday and then Fed Chairman Ben Bernanke’s semi-annual report to Congress next week.
Stocks spent most of the day in the green Wednesday as strong earnings in Cisco encouraged a broad tech sector advance. Pacing the market by 17:30 GMT, the NASDAQ Composite was trading 0.85 percent above the open at 2,492.57. The S&P 500 was more reserved in its 0.3 percent advance to 1,452.31 while the Dow climbed 0.18 percent to 12,689.54. Leading up to the open of active trading in New York, stock traders were vying for their chance to trade Cisco after it printed better than expected fourth quarter data and sales forecasts after yesterday’s close. Shares of Cisco were quoted 4.2 percent higher at $28.42 by mid-day. Another top gainer was Amazon who announced a deal with TiVo to compete with Wal-Mart to sell movies that can be sent to wireless devices, computers or TiVo boxes. Shares of Amazon rose $0.88 or 2.3 percent to $39.15 while those of TiVo jumped 8.0 percent to $5.92.
Treasuries extended their steady advance as investors attached themselves to the deceleration in labor costs as a means to unwind rate hike expectations. T-Notes were trading 6/32nds higher at 99-03 by 17:30 GMT while yields slipped 2 basis points to 4.741. The thirty-year bond followed suit with a 9/32nds advance to 94-19 as it own yield lost 2 basis points to 4.849.