US$ Regains Some of Yesterday's Losses

The U.S. dollar gained slightly overnight against the Euro and British pound, paring its losses during yesterday’s trading session.  The U.S. economy grew for the first time in over a year, with GDP registering at 3.5% and beating investor’s expectations.  The number gave market participants further hope that the global economy is pulling out of the worst recession since World War II, weighing on the greenback.  The dollar could see continued volatility as today’s economic docket is likely to show mixed signs of recovery.  Personal spending in the world’s largest economy fell 0.5% in September after growing 0.1% in the previous month.  Personal incomes held flat after advancing 0.2%, but inline with economist’s expectations.  Later this morning, manufacturing activity is anticipated to fall at a slower pace in October as market participants forecast the Chicago PMI to rise to 49.0 from 46.1.  At 10 a.m., the U. of Michigan confidence reading is expected to increase to 70.0 from 69.4. 

 

The Euro slipped slightly overnight against the dollar, following yesterday’s steep improvement.  Retail spending in Germany slipped 0.5% in September amid expectations for a 1.0% rise, while the annual rate of consumption plunged 3.9% from the previous year after falling 2.9% in August. Moreover, the annual rate of unemployment rose to 9.7% from 9.6% in August, which is the highest since January 1999.  These poor numbers will likely lead the European Central Bank to hold a dovish policy stance throughout the second-half of the year as the outlook for growth and inflation remains far from favorable.

 

The Japanese yen rose against its major rivals after the Bank of Japan said it will stop buying corporate debt at the end of the year, reducing concern that the central bank is flooding the market with yen.  The yen also benefited from a slight pullback in risk appetite as U.S. equity markets are poised to open slightly lower.  If stocks retraced some of yesterday’s two percent gain, the yen could continue to strengthen throughout our trading session.

 

The British pound was relatively unchanged overnight after gaining sharply against the US dollar yesterday, as the pound continues to retrace its losses from last month’s sell off.  The GfK consumer confidence survey rose to a 21 month high in October, with the index advancing to -13 from -16 in the previous month.  The data reinforces an improved outlook for private spending, as households turn increasingly optimistic towards the economic recovery.  Also, the Nationwide house price index rose 0.6% in October to mark the sixth consecutive monthly advance, while the annualized rate rose 2.0% from the previous year to post the first annual increase since March 2008.  The strong economic data will likely buoy the pound ahead of next week’s Bank of England interest rate decision.