Dollar Turns after Surprisingly Weak U.S. Consumer Confidence

The dollar started the U.S. trading session weaker against higher yielding currencies, but the sell-off is beginning to lose steam as equities struggle to extend their gains. The month, quarter, half year end has led to a tremendous amount of intraday volatility in the EUR/USD and GBP/USD and we expect this to continue until fixings are over. U.S. economic data was mixed with Consumer Confidence retreating, but Chicago PMI and House Prices improving. Following the upward revision to the University of Michigan Consumer Confidence survey, the decline in the Conference Board's Consumer Sentiment report was a big shocker. Despite the fact that the S&P 500 is close to 40 percent off its March lows, Americans grew less optimistic about present and future situations. The weaker confidence number should help the dollar recovery for the rest of the day.

The impact of the Chicago PMI report on the dollar was limited because it confirms what we know already, which is that the manufacturing sector is recovering nationally. We now expect a meaningful improvement in the ISM manufacturing index thanks to the steep declines in prior months and dollar weakness.

Be Careful: CaseShiller Conflicts With Existing Home Sales Report

According to S&P/CaseShiller, house prices declined at an annualized pace of 18.1 percent, the slowest rate since April 2007. Although this report is encouraging because it suggests that the pressure on sellers to lower prices is abating, we are cautious of reading too much into this report as it is inconsistent with the third largest decline in the price of existing homes during the month of May.

Dollar Hits Fresh YTD Low Against British Pound

Also, in our daily report on Monday, we openly speculated about whether the dollar would hit a new year to date low. Our conclusion was that the chances of this happening are low for every major currency except for the British pound, Australian and New Zealand dollars. At the London open, the GBP/USD raced to a new 8 month high of 1.6744. Since then the currency pair has given up all of its gains on the heels of a much weaker than expected current account report and a downward revision to first quarter GDP. The weakest growth in more than 5 decades has triggered a near term top in the GBP/USD.

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