Economic data showing a U.S. consumer still under stress, continuing concern over sovereign debt in the euro zone and a possible further tightening of Chinese fiscal policy all worked together to lead investors to the safe-haven dollar and yen.
“Every major region has its own bad story that seems to be coming back into play,” said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J.
Late Friday in New York, the euro was at $1.4376 from $1.4504 late Thursday, according to EBS via CQG. The dollar was at Y90.82 from Y91.09, while the euro was at Y130.54 from Y131.93. The U.K. pound was at $1.6255 from $1.6335. The dollar was at CHF1.0269 from CHF1.0182.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 77.222 from 76.729.
As a result, Deutsche Bank’s PowerShares US Dollar Index Bearish (UDN) exchange-traded fund was trading down 0.68% from late Thursday, while its PowerShares US Dollar Index Bullish (UUP) was up 0.57%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of ICE’s Dollar Index.
The euro was among the worst-performing major currencies, slipping more than 0.85% against the dollar and nearly 1.25% against the yen by late Friday.
Continuing concerns over Greece, which is struggling with large deficits and doubts over its sovereign creditworthiness, also weighed on the euro.
European Central Bank President Jean-Claude Trichet said after Thursday’s rate-setting meeting the central bank wouldn’t offer any euro zone member “special treatment,” and said Greece would not be exempt from collateral requirements.
“Fiscal factors have weighed on the euro when those things have been hitting the headlines,” said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.
Adding to investors’ flight from riskier assets was concern over the U.S. consumer, heightened by the release of J.P. Morgan’s fourth-quarter earnings, which noted losses in its card services, consumer lending and retail financial services segments.
J.P. Morgan Chief Executive James Dimon expressed a cautious outlook, noting that “consumer-credit costs remain high, and weak employment and home prices persist.”
Survey data released Friday showed the U.S. consumer–considered key to an economic turnaround–remained stressed. The University of Michigan/Reuters consumer sentiment index’s preliminary reading for January edged up to only 72.8 from the final December reading of 72.5. Economists had expected sentiment to improve to 74.0.
Currencies reacted little to other U.S. economic data released Friday, including the seasonally adjusted consumer price index, which increased slightly, in line with expectations. Industrial production also registered an uptick, in line with what economists had forecast.
“The numbers that were out [Friday], particularly the consumer confidence data, were not great,” sparking some concerns over the pace of the U.S. recovery, said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, N.J.
Speculation over whether China would further tighten fiscal policy to put the brakes on growth, fueled by data that showed rising bank lending, also led investors away from risk-positive currencies. The yen benefited most from the flight to safety.
Chinese financial institutions extended almost double the amount of new yuan loans in 2009 compared to a year earlier, according data issued Friday on the People’s Bank of China’s Web site.
Earlier this week, in a small step toward tightening, China’s central bank raised its yuan reserve requirement ratio by half a percentage point in a bid to stave off inflation.
If China puts a brake on its economy, and if global growth generally slows, the commodity-backed currencies of Australia, Canada and New Zealand could suffer. All were down against the U.S. dollar Friday.
Growth-sensitive assets including oil, gold and other metal prices slumped. The Australian dollar led the decline in the commodity-backed dollar bloc, dropping nearly 0.9% against the U.S. dollar.
Filed Under: Featured
About the Author: