November 5, 2009 USD Analysis

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* The dollar traded mixed ahead of Friday’s release of US payroll data. US productivity surged for a second quarter and jobless claims declined more than expected. The S&P 500 rose 20.13 to 1,066.63, supported by those good economic news and an optimistic outlook from the technology giant Cisco. The stock market rally did not pressure the dollar and yen as it had been the case lately. It will be interesting to see if this is the beginning of the breakdown of the negative correlation between the dollar and stock market. The yen fell slightly for a fourth day. The euro rose modestly. The European Central Bank kept its benchmark interest rate at 1.00%, as expected. ECB President Jean-Claude Trichet said the ECB plans to phase out its unlimited liquidity operations next year. Extraordinary liquidity measures will be “phased out in a timely and gradual fashion” in order to “counter effectively any threat to price stability over the medium to longer term,” Trichet said. The Australian dollar gained modestly. Australia’s trade deficit widened less than expected. The Canadian dollar declined slightly. Canadian building permits increased for a second month.

* The GBP/USD rose today, supported by data on improving UK industrial output as well as the Bank of England’s decision to expand its asset purchase plan by less than expected. The BOE maintained its key interest rate at 0.50%, as forecast. The GBP/USD, having been trading sideways since the early summer, is approaching important resistance. If this resistance is broken, the pair will likely test the 1.70 cycle high. Supports are in the 1.62 and 1.60 areas.

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(RTTNews) - The dollar tumbled versus the yen on Friday as renewed pessimism about the global economy in the wake of a troubling report on the US jobs situation fueled a move from riskier currencies to the safe haven yen.

Unemployment soared above the psychologically important 10%, a sign that this summer's economic growth has yet to translate into a stable jobs situation.

With US workers remaining anxious about getting pink slips and fewer people able to find jobs, consumer spending, once the engine of organic growth, is likely to remain extremely muted.

The report released by the Labor Department on Friday showed that non-farm payroll employment fell by 190,000 jobs in October following a revised decrease of 219,000 jobs in September. Unemployment hit a new twenty-six year high of 10.2 percent.

The dollar dropped versus the yen as traders bet the Japanese currency was a better safe haven play than the world's reserve currency. The buck slipped to 89.60 yen, down from a weekly range near 91.

Meanwhile, the dollar was stable versus the euro, holding near 1.4850. Back in October, the dollar hit a yearly low of 1.5059, back his since found support as risk appetite has waned.

The back firmed up a bit versus the sterling before returning to its pre-jobs report level near 1.6600. The pair has been stuck between 1.5700 and 1.6700 for the last few weeks, with the dollar easing to the lower end of that range of late.

The buck spiked higher versus its Canadian counterpart, taking back losses from earlier in the week. The buck improved to C$1.0750, staying well away from October's yearly low near C$1.0200.

The Canadian employment situation took an unexpected turn for worse in October, pushing the unemployment rate to 8.6%. The data cemented expectations the Bank of Canada will keep interest rates low for the time being.