The U.S. dollar fell overnight against its major rivals as a rise in risk appetite and a rebound in commodity prices led the dollar to give back some of yesterday’s gains. The dollar is likely to experience increased volatility this morning, as the world’s largest economy emerged from the recession in the third quarter. GDP was released better than expected registering at 3.5% versus expectations of 3.2%. The strong number shows the U.S. economy grew for the first time in more than a year, propelled by stimulus gains in consumer spending and home building. Initial jobless claims were released inline with expectations, but continuing claims registered better than expected with a reading of 5797K versus and expected jump of 5905K. The dollar has weakened slightly on the heels of the strong economic data as investors seek higher yielding assets.
The Euro snapped its four-day losing streak against the dollar overnight as investors increased their appetite for risk before today’s GDP numbers in the United States. The European economic docket reinforced an improved outlook for future growth, buoying the common currency. German unemployment slipped 26K in October amid expectations for a 15K rise, with jobless rate falling back to 8.1% from 8.2% in the previous month. Also, business sentiment in the euro-region increased to -1.78 during the same period from -2.07 in September, with economic confidence rising to a 13-month high of 86.2 from 82.8. Higher global equities pared with strong economic data could push the Euro higher as the higher yielding currency continues its strong correlation to risk.
The Japanese yen declined against most the their major counterparts, including the dollar following the release of strong U.S. GDP. With the world’s largest economy growing more in the third quarter than economics forecast, the yen has lost ground as demand for higher-yielding currencies increased. Higher European stocks and positive U.S. equity futures have also weighed on the safe-haven currency. Expect the yen to remain weak throughout trading as U.S. equities are poised to retrace some of yesterday’s losses.
The pound continued its advance against the dollar, retracing much of its losses from the last month. However, the pound is likely to remain range bound ahead of Bank of England’s interest rate decision next week. Mortgage approvals in the U.K. jumped to an 18-month high of 56.2K in September from a revised reading of 53.0K in the previous month. At the same time, the M4 money supply grew 0.8% in September amid an initial forecast for a 0.7% rise, with the annualized rate increasing 11.6% from the previous year. The data reinforces an improved outlook for the U.K. housing market and suggests banks are increasing their willingness to lend as the government takes unprecedented steps to shore up the economy.
