US Dollar Unfazed by Subprime Talk, Have Markets Underestimated Impact of Fed Speech?

The US Dollar remained at multi-decade lows against major counterparts, as a relatively quiet calendar forced little volatility across greenback pairs. Traders managed to send the Euro just short of its record-highs, but mediocre European economic data led to some profit taking through later London session trade.

The Euro changed hands at $1.3805 through the New York afternoon. Disappointments in UK Economic data allowed the GBPUSD to ease off of 26-year highs, trading at $2.0487 through time of writing. The dollar likewise gained against the Japanese Yen, adding a modest ¥0.13 to ¥122.05 on a rebound in US equity markets.
US economic data was limited to the morning?s Initial Jobless Claims report and a later Philadelphia Federal Reserve Survey. The Labor market saw a modest increase in number of claims for unemployment benefits through the week ending July 7, with the headline number growing to 2.571 million from 2.554 previous. This was hardly a cause for alarm, however, as the number of Initial Jobless came in at a relatively positive 301k versus 309k in the preceding seven days. The number has been trending lower as of late, which may prove bullish for the end-of-month Non Farm Payrolls data?a critical component to US dollar performance. Though the data is hardly a market-mover on release, it leaves bullish implications for overall economic health.
Other event risk came on continued Fed Chairman Ben Bernanke testimony to the US Congress and the release of the official minutes from the June 28 FOMC meeting. Both were seen as relatively uneventful, with the Fed chairman and the Open Market Committee largely reiterating their views from yesterday?s testimony to the House of Representatives. Notable exceptions included further mention of the subprime housing sector. The chairman estimated that the current subprime lending problems would cost businesses and consumers approximately 50-100 billion dollars when all is said and done. But some were quick to note that these predictions did not account for broader lending industry losses and that the net effects would be more pronounced. Traders nonetheless left the dollar relatively unchanged in the moments that followed the commentary, and later FOMC minutes likewise did little to move currencies. The report rounded out the US calendar for the week, with tomorrow showing no foreseeable event risk on the ledger.
Domestic equity markets rebounded on bullish earnings reports, as key tech companies IBM and Hewlett-Packard announced better than expected profits through the second quarter. The dow was up 51 points to 13,969.44 near the close, while the S&P 500 inched 0.25 percent higher to 1,549.82 at time of writing. Tech stocks were unsurprisingly the best performers on the day, with the NASDAQ Composite 0.70 percent stronger to 2,719.
Fixed income markets traded much like major currency pairs, remaining exactly flat on the day. The benchmark 10-year note traded at 95 and 15/16 to leave yields unmoved at 5.03 percent.