The beleaguered U.S. dollar strengthened overnight on the back of dollar positive news. Beating market forecasts, GDP numbers driven by growing exports are staving off recession fears. A surge in inventory-building and robust exports propelled U.S. economic growth ahead at the fastest rate in four years during the third quarter, the government reported. Gross domestic product that measures total production within U.S. borders climbed at a revised 4.9% annual rate instead of 3.9% reported a month ago. It was the strongest quarterly growth rate since the third quarter of 2003. Analysts are still keeping a wary eye on the slumping housing sector and waning consumer confidence which is predicted to sap fourth-quarter growth and bring recession fears back. Additionally, the perceived likelihood of more U.S. interest rate cuts in coming months is supporting the dollar. Typically the outlook for lower rates make dollar-denominated securities less attractive and reduce demand for dollars, but given concerns about problems with U.S. housing and credit markets, signs the Fed will continue to act to help the U.S. economy strengthen should attract investment inflows. Investors will also be looking to a speech tonight by Fed Chairman Ben Bernanke for additional clues to interest rate moves.
After a late afternoon surge yesterday, the Euro returned to its recent ranges near one week lows against the USD. Quite a turnaround from last Friday’s record highs, the euro should remain well supported and with the looming Fed rate cut, will likely march to 1.50 before year end, with a move to 1.52 in Q1.
Yesterday’s move higher by the British pound was short lived as data continued to paint a negative picture of the UK economy, underpinning expectations that the Bank of England could cut rates as early as next month. The Nationwide building society said house prices fell this month at their sharpest rate in more than 12 years and mortgage approvals dropped to their lowest in nearly three years in October -- signs the once red-hot house market is cooling fast.
The Japanese yen remains at yesterday’s levels against the USD due to investors supporting the USD, with many believing that recent movements against the USD were overplayed. Investors continue to be wary of BoJ intervention and tend to consolidate after sharp moves.
Stronger USD sentiment this morning is keeping the Canadian dollar under pressure. Movement of the currency pair is limited ahead of a Bank of Canada rate announcement on Dec. 4. Some softer than expected economic data out of Canada today, strengthened the likelihood of a rate cut on Tuesday. Since hitting a modern-day high on Nov. 7, the Canadian dollar has been rattled by a variety of factors that include weak domestic economic data, an equity-market sell off and growing talk of a Bank of Canada rate cut.
Approaching 2-month lows against the USD, the Australian and New Zealand dollars continue to be weighed down by worries that demand for commodities would be hurt by sluggish global economic growth.
