U.S. Dollar Holds Onto Gains Despite Data

Risk aversion is the theme of the day with stocks down more than 100 points and the dollar up against nearly all of the major currencies. It has been a busy morning with a flurry of economic data and Treasury Secretary Geithner speaking on the hill. Jobless claims were virtually unchanged at 505k but continuing claims rose to 5.611M. The labor market is still the primary sore point of the U.S. economy and based upon the latest reports, it hasn't improved significantly. Many traders may be focusing on the 500k mark in claims and ready to celebrate when weekly claims fall below those levels. However as we pointed out last week, we are pretty much there and even though a break below 500k will feel significant to some traders, it will not make the growing population of unemployed Americans feel any better.

Meanwhile despite a drop in the Empire State Manufacturing survey earlier this month, the Philadelphia Fed survey rose from 11.5 to 16.7. The details of the report indicate that improvements were seen in 6 out of 9 underlying components. This suggests that the slowdown in the manufacturing sector recovery may not be as widespread as previously thought. Finally, leading indicators grew for the seventh consecutive month. However the 0.3 percent rise was right in line with expectations but weaker than the 1.0 percent growth seen last month. According to the Conference Board, the positive contributors - beginning with the largest positive contributor - were the interest rate spread, average weekly initial claims for unemployment insurance (inverted), stock prices, average weekly manufacturing hours, real money supply and manufacturers' new orders for consumer goods and materials. The negative contributors - beginning with the largest negative contributor - were index of consumer expectations, building permits, index of supplier deliveries (vendor performance), and manufacturers' new orders for nondefense capital goods.

The mixed economic reports only had a marginal impact on the U.S. dollar and so far Treasury Secretary Geithner is primarily talking about financial reform. He did mention that the U.S. economy is in recovery mode and growth should improve over the next few quarters. Watch out for any comments on the dollar. However what triggered the meltdown today came from China and fears over the real estate bubble. Therefore a turnaround in the markets is unlikely. The biggest mover was the NZD/USD which was hit by Labour opposition that has withdrawn its support for an inflation targeting and its impact on the NZD and exports.

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