Dollar retreats ahead of Thanksgiving holiday after extending recent gains: 26 Nov, 2015

Market Review - 25/11/2015 22:40GMT 
 
Dollar retreats ahead of Thanksgiving holiday after extending recent gains

The greenback strengthened against other major currencies on Wednesday as release of economic reports from U.S. boosted optimism over the strength of the economy and added expectations that Federal Reserve is on track to raise interest rates in December.

Versus the Japanese yen, although U.S. dollar came under renewed selling pressure at 122.58 ahead of Asian open and fell below previous session low of 122.31 to 122.26, renewed broad-based buying in the greenback later lifted price to 122.74 in European midday, then 122.94 in New York morning after release of solid U.S. economic reports before retreating on profit-taking.

On the data front, The U.S. Department of Labor said on Wed that the number of individuals filing for initial jobless benefits in the week ending November 21 declined by 12,000 to a seasonally adjusted 260,000 from the previous week's revised total of 272,000, a level near the lowest level in 40 years. Meanwhile, official data that U.S. personal spending inched up by a seasonally adjusted 0.1% last month, while U.S. personal income rose to a seasonally adjusted 0.4% in Oct, from 0.2% in the preceding month whose figure was revised up from 0.1%.

In addition. the U.S. Commerce Department said that total durable goods orders, which include transportation items, jumped by a seasonally adjusted 3.0% last month, easily surpassing forecasts for 1.5%. Orders for durable goods in September were revised to a drop of 0.8% from a previously reported decline of 1.2%.

Later, the U.S. Commerce Department showed that new home sales rose by 10.7% to a seasonally adjusted 495,000 units in October, compared to expectations for a gain of 6.0% to 500,000. New home sales in September were revised down to 447,000 units from a previously reported 468,000 units. Having said that, the latest reading from the University of Michigan showed that consumer confidence index came in at 91.3, better than last month but below November's preliminary reading. Expectations were for the reading to come in at 93.1, unchanged from the preliminary reading earlier this month and up from a reading of 90 last month.

The single currency surrendered gains against the greenback after Reuters news reported that ECB officials are considering options such as whether to stagger charges on banks hoarding cash or to buy more debt ahead of the next ECB meeting. During the day, the single currency rebounded after finding support at 1.0639 just ahead of Asian open and rose to 1.0689 in European morning, however, euro's bearish news from Reuters knocked price sharply lower and price eventually fell to a fresh 7-month trough of 1.0566 in New York before recovering.

In other news, European Central Bank Vice President Vitor Constancio said on Wednesday, 'developments since June made meeting the inflation target by 2017 more difficult; December rate decision will not significantly change stability outlook , regardless of meeting's outcome; ECB sees low level of financial systemic risk in Euro area; ECB sees increased risk of abrupt increase in risk premia at global level, amplified by low market liquidity; faster-than-expected fed tightening could push Euro area yields higher; financial vulnerability from emerging markets increasing, China a "particular concern"; Euro area banks challenged by low profitability, ROE, high NPLs; some Euro zone countries face debt sustainability challenges, creating systemic risk; commercial property prices above long-term average amid continued strong price increases; ECB sees no asset bubbles in corporate bonds, equities, residential real estate.'

Elsewhere, the British pound fluctuated widely against the greenback on Wednesday. Cable briefly rose to 1.5115 in Asia and then fell in-tandem with euro to a low of 1.5056 in Europe before active cross-buying in sterling lifted price to 1.5124 in New York morning. Later, the pair retreated to 1.5066 but only to rise to a fresh session high of 1.5130.

Another piece of news from Reuters worth mentioning. Bank of Japan Board Member Shirai said on Wednesday 'BoJ may consider some monetary policy adjustment if path toward price rises envisaged by BoJ does not materialise at all; expect Japan's economic recovery to remain moderate for time being; come capital expenditure plans may be delayed given weakness in machinery orders, labour shortages; private consumption to maintain moderate recovery trend; risks to Japan's economy titled toward downside for fiscal 2017; expect Japan to achieve 2 PCT inflation around latter half of fiscal 2016; my projection is for core CPI to rise to a little over 1 PCT in Fiscal 2016, reach "around a little over" 1.5 PCT on average in fiscal 2017; may take longer than expected for inflation expectations to heighten steadily; what's important is for sustainable wage hikes, expansion in household expenditure to accompany any rise in inflation; must look at various indicators, not just core CPI, in determining broad price trend.'

Data to be release on Thursday:

New Zealand trade reports, Australia's building Capex, plant/machinery Capex, capital expenditure, Swiss industrial orders, EU M3 annual growth, Germany CPI and HICP. U.S. markets will be closed on Thursday due to Thanksgiving day holiday.