The major currencies
The major currencies were subjected to
choppy and volatile trading in the Wednesday session with the dollar initially plunging to an all-time low against the Swiss franc and a fresh two and a half year low versus the yen. The greenback, however, managed to lick its wounds by the New York afternoon – rebounding from beneath the 106-level versus the yen to 107.90 and recovering above the 1.10-mark against the franc.
The December
consumer price index revealed buoyant inflation conditions, at 0.3% m/m and 4.1% y/y. The excluding food and energy figure was unchanged at 2.4% y/y. Industrial output was flat, versus a 0.3% increase a month earlier. The NAHB housing market index for January was unchanged at 19.
The Fed was more upbeat in its Beige Book, saying “economic activity increased modestly mid-November through December, albeit at a slower pace”. The Fed said holiday retail spending was subdued, with further weakness in auto sales. It saw weakness in residential real estate across the US, while commercial real estate remained mixed.
The dollar regained its footing
The dollar regained its footing by the New York afternoon following earlier selling against the euro, sterling and yen. A sluggish retail sales report for December was the catalyst for the greenback’s drop to multi-year lows versus the yen at 106.62.
The December
retail sales figure unexpectedly dropped by 0.4% versus a 1.2% increase from November, meanwhile the excluding autos report also fell by 0.2% from a 1.8% reading previously. The producer price fell by 0.1%, versus 3.2% a month earlier while the core reading slipped to 0.2% from 0.4%. The data reinforces expectations that the Fed will aggressively cut rates by 50-bp when it meets at the end of the month.
The dollar’s recent rebound against
The dollar’s recent rebound against the euro and sterling was undermined by weak economic data. The reports released earlier today added to burgeoning fears that the US economy is headed toward a recession. A combination of poor housing data and a disappointing Philadelphia Fed survey set the tone for the trading session, with the greenback initially weaker across the board. The reports also fueled expectations for aggressive policy easing from the Fed beyond the largely priced-in 50-bp rate cut anticipated at the end of the month.
Housing starts for December plunged by over 14% to 1.006 million units, its lowest level in 16-years. Consensus estimates were calling for a drop to 1.14 million units versus 1.187 million units from the previous month. December housing permits declined by 8.1% to 1.068 million units, versus a 0.7% drop in November at 1.162 million units. On a positive note, weekly jobless
claims declined to 301k from 322k.
The January Philadelphia Fed survey revealed dismal economic conditions, falling to its lowest level in six-years to -20.9, far greater than expectations for a decline to -1.0 from -1.6 from December. The employment index dipped into negative territory in January to -1.5 from 3.8 in December, its lowest level since September 2003. The new orders component fell to -15.2 in January, a sharp reversal from the 12 reading in December.
