US Dollar Down on Mounting Consumer Pessimism

· US Dollar Down on Mounting Consumer Pessimism
· Euro Edges Higher on Surprise Jump in Ifo Sentiment Survey

US Dollar
– The US dollar was widely lower following a rather lackluster consumer confidence number released in theNew York morning. According to the Conference Board’s index, consumer confidence dipped to 107.2 from a five year high of 112.5. Leading consumer pessimism were concerns about the recent housing sector weakness, equity benchmark declines and higher energy costs. However, one component that lent a silver lining was the labor market component. Rising to 30.5 percent, the share of consumers stating that jobs were plentiful advanced the highest since August 2001. Although this fact should have lifted the dollar, the overall tone remained bearish as the headline index will likely keep the Federal Reserve considering a near term rate cut rather than a rate hike. Subsequently helping the dollar lower in the New York session were comments made by Federal Reserve Bank of Chicago President Michael Moskow. In a speech to the Central Party School No. 100 in Beijing, China, Moskow remarked just a week after the central bank’s decision that further economic data would be widely considered by central bankers. This fact alone would dictate the Fed’s next monetary action as the central bank has now officially dropped the “additional firming” clause in interest rates. “Whether policy will need to be adjusted and the degree of any adjustment will depend on the data we see in the months to come and how that data influences our forecast of the economy”. However, the Chicago Fed chief did profess that inflationary pressures have been “stubbornly high” and continues to exceed 2 percent for the near term as labor markets remain tight. The proof was in the pudding as the Fed’s preferred measure, the personal consumption expenditure figure, rose 2.3 percent annually in recent postings. Ultimately, traders concentrated on the absence of a clear monetary bias, siding with the negative confidence report in taking dollar weakness.
EURO – Boosting the euro slightly higher against the pound and the US dollar was an unexpected rise in German business confidence for the month. According to the Ifo institute, confidence among 7,000 German executives rose to 107.7 in March from the 107 witnessed in the month of February. The results counter negative sentiment supported by a previous dip in the Belgian business confidence survey witnessed last week as well as concerns of the heavier VAT tax. Previous estimates forecasted lower growth and confidence going forward as a result of the increased sales tax in the beginning of the year. However, now with the effects seemingly limited, businesses are looking forward to near term growth. Today’s results will now be placed juxtapose a la advancement in industrial production and exports, both which continue to power the Eurozone’s largest economy. Coincidentally, the report’s optimistic results come a day after a EU commission estimated robust growth in the region. Both are likely to help in supporting further rate hikes by the ECB and its hawkish president Jean Claude Trichet in the near term.

British Pound – The British pound was hit by the case of the jitters today as traders pared back some exposure to the supported sterling. Sparking the mild selloff in the overnight session were comments by none other than Bank of England Governor Mervyn King. Speaking to parliament with four other members of the Monetary Policy Committee, King stated that a slowdown in the housing sector is starting to emerge as a result of the past three rate increases but noted near term stability. “If house prices were to fall by a relatively modest amount, I don’t think the consequences would be very severe”, answered King when making comparisons to subprime concerns currently looming over the US economy. Governor King also noted that although inflationary pressures remained strong and supported for the time being, he remained confident that price increases would slow to the 2 percent benchmark target set by the central bank within the next two years. Nonetheless, during the testimony the head central banker ended on a mixed view, overwhelming bearish sentiment by stating that upside risks continue to remain in the short term. Purported by rising manufacturing and strong retail spending, consumer prices may continue to ride high for now. Traders are betting on this single phrase as the market continues to price in the likelihood of a 25 basis point rate hike by June. Next up, pound proponents will be looking ahead to Nationwide housing prices. Should prices continue to show advancement in the preliminary evaluation, bulls will likely make a run in the short term.

Japanese Yen – After weakening for much of the early European session on the back of a lower-than-expected Corporate Service Price Index, the currency managed to break the 118.00 level during US trading. Annualized CSPI growth slowed to 0.4 percent from 0.6 percent in February and the breakdown showed that almost every single component fell or went unchanged with the exception of transportation costs, which jumped during the month. Comments by Bank of Japan Governor Fukui reiterated the data, but boosted inflation expectations for later in the year when he told the Diet’s Upper House committee on financial issues that “price changes are expected to be around zero percent for the near term due to oil prices declines, but in the long term prices are on a uptrend as the output gap will move in positive territory.”

Commodity Currencies – A sparse economic calendar left the Australian and New Zealand dollars trading in thin ranges today with price straying little more than 10 points from Monday’s New York close. The sole release for the region was Westpac New Zealand Consumer Confidence, which dropped unexpectedly to 117.7 from 119.7 as higher fuel prices and rising rates crimped sentiment. Meanwhile, the Canadian dollar was buoyed by the Quebec election results, as the separatist Parti Quebecois landed in third place, eliminating much of the political risk of the event. Furthermore, the Liberals lost their majority to the nationalist upstart party Action Democratique. Quebec Premier Jean Charest, a member of the Liberal Party, will stay in power but this is the first time in more than 40 years that a Quebec premier has failed to win a second majority.