US Dollar Forges Record Lows against Euro, but Carry Trade Flourishes

The US dollar continued on its losing ways, setting fresh record lows against the Euro and 31-year depths to the Canadian dollar. Overall momentum was the main culprit for the fresh losses, with disappointing ISM Manufacturing results likewise keeping the greenback on offer.

Dollar weakness remained the theme of overnight Tokyo trade, with the Euro setting fresh records of $1.4281 through Sunday’s open. The trade-weighted Dollar Index set all-time records of 77.65 before recovering through later price action. News of continued troubles in the UK financial sector were not enough to sink the British Pound, as the GBP/$ exchange rate hit multi-month highs of $2.0493 through the period. The downtrodden Japanese Yen was the only currency to fall against the US dollar; the greenback added ¥1.20 off of Friday’s close to ¥115.73.
Morning US Institute of Supply Management Manufacturing data only worsened sentiment for the domestic economy, with the key industrial indicator falling for the third consecutive month. The index reached its lowest levels since March, with tumbles in the majority of sub-indices bringing the headline lower. The largest decline came from the Inventories measure, which shed almost 4 points to 41.6. Given that 50 is the neutral contraction/expansion level for all relevant ISM index figures, the result shows us that Inventories are accelerating declines through the medium term. Such a result unsurprisingly coincided with a fall in New Orders, at 2 points lower to 53.4. The Production index was similarly off of August levels at 54.6.

Most signs point to shrinking Manufacturing output in the face of slowing demand, but it was surprising to note a small improvement in the Employment component for the ISM index. The relevant sub-index improved for the second consecutive reporting period, implying that hiring remains relatively stable for domestic producers. Given that Manufacturing accounts for less than 20 percent of the domestic labor force, these results will have limited impact on outlook for broader labor trends. Yet it is encouraging to see stability in a previously lagging sector of the domestic labor market.
Domestic equity markets shrugged off mild disappointments in ISM data to close at record highs through the afternoon. The Dow Jones Industrial Average remained above the psychologically significant 14,000 mark to finish at 14,087, while the S&P 500 was similarly bid at 1,547. Tech stocks were the largest percentage movers on the day, with the NASDAQ Composite 1.5 percent improved to 2,741.

US Treasuries were a mixed bag on the trading day, with a small gain in short-term yields in contrast to falling longer-term figures. An ease in overall risk aversion allowed the 2-year Treasury Note to add 3 basis points to 4.00 percent, but the 10-Year and 30-Year debt instruments each lost 5bp to yield 4.54 and 4.78 percent, respectively.

Written by David Rodriguez, Currency Analyst for