Currencies stabilize on solid jobs data

IB FX Brief: Forex markets soothed by drop in U.S. initial claims data

Commodity dollars broke away from the pack after a U.S. employment reading reminded wary dealers that burning issues over European debt crises were not about to derail a global recovery. The dollar did weaken, although there are plenty of skeptical traders not wishing to drum up enthusiasm for the single European currency after it proved vulnerable to contagion worries.

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Euro – The euro reached its lowest level against the dollar in exactly two months after S&P tore a strip or two off its ranting of Irish sovereign debt. It lowered the rating two notches and retained a negative outlook on the nation stating that the size of the bailout is turning out to be bigger than the ratings agency had previously factored in. The euro slid to $1.3285 despite a rise to a record level for German business confidence. Three IFO survey readings for November registered improvements to new highs, but failed to boost demand for a euro that has lost 10 cents against the dollar since November 4. The recent slide in the euro has come as a direct result of German insistence for a permanent crisis resolution mechanism to be put in place going forward.

U.S. Dollar – The dollar hit a high at 80.00 against a basket of currencies on renewed European worries before reversing course to 79.49 for a loss on the day of 0.25%. Among all of the pre-holiday data only one event was of significance on Wednesday. Initial jobless claims slid to 407,000 and continued to drag down continuing claims. The labor market has now improved for three weeks and while it’s too early to sound the all-clear, this is an extremely significant data points.

British pound – The pound was initially buoyed against the dollar after third quarter GDP data confirmed the extremely healthy preliminary reading of 0.8%. The economy was helped by exports during a phase when consumers were cautious over spending. The pound has reversed on the session and trades down on the day at $1.5770. The pound did reach a nine-week high versus the weakening euro and hit 84.28 pence.

Japanese yen – A recovering global economy, minus the intermittent Korean hiccups and woes within the Eurozone, is turning investors less optimistic on the fortunes of the yen. Global pressures have calmed the need to seek out the refuge of yen safety. Domestic consumption picked up during October as indicated by reports showing nationwide and Tokyo department store sales both made year-on-year gains. The yen clawed back an earlier loss to the dollar to stand at ¥83.27 although fell during the morning in New York against the euro to stand at ¥111.47.

Aussie dollar – Weakness against the dollar to 97.40 U.S. cents was shrugged off as investors figured that neither the Korean exchange of fire nor the Irish situation were likely to cause anything more than a murmur in global growth prospects. The Aussie has fallen since a positive start to the week and dealers figure it’s become inexpensive. In mid-morning trading ahead of the Thanksgiving break, the Aussie recently traded up to 98.45.

Canadian dollar – The loonie surged on the back of the glowing initial claims data. What’s good for the U.S. economy is good for a fiscally fit Canada and dealers plowed in this morning driving the local dollar back to 98.52 U.S. cents.

Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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