www.forexnews.com
The dollar rallied across-the-board in a delayed reaction to today's exceptionally better US growth, confidence and manufacturing data in thin trading ahead of the Easter and Passover holiday weekend. The greenback was also heartened by affirmation from US Treasury Secretary O'Neill yesterday that the US continues to abide by its strong dollar policy. O'Neill remarked that he would be "willing to bet" that the Fed's McDonough regretted the comments made on Tuesday that the dollar might be overvalued, and markets thus interpreted his chiding as a reason to have faith in the strong dollar.
Although not having an immediate impact in the FX market, traders were stunned by the upward revision in US Q4 2001 GDP to 1.7% q/q from the initial estimate of 1.4%, marking its strongest growth since Q4 2000. The improvement was attributed to an increase in US Q4 Final Sales of 3.8%, up from the previous 3.6%. Additionally, US consumer spending was revised higher in its largest rise since Q2 '98 to 6.1% in Q4 from 6.0%, while durables also climbed to 39.4% from 39.2%. Another contributor to growth was an improvement in US rev Q4 exports to -10.9% from -12.2%, even as imports declined to -7.5% from -6.9%. The aforementioned factors were sufficient in boosting GDP in spite of the fourth straight quarterly fall in business investment to 13.8% in Q4 from the preliminary 13.1%, in hand with a slowdown in business spending on equipment/software to -5.3% from -4.8%. The US revised Q4 business inventory change rose to -119.3 bln from -120.0 bln. On a side note, the US final Q4 PCE Price Index ticked higher to 0.8% from 0.7%, as did the Core PCE to 2.7% from 2.6%, reflecting a slight upward trend in inflation that still remains relatively mild.
The morning's first positive surprise was thereafter followed by another pleasant development as the University of Michigan Sentiment survey topped forecasts and rose to 95.1 in the final March reading from the previous 90.7. Most astonishing was the leap in the current conditions index to 100.4 in March from the previous 87.2. Nonetheless, the expectations component of the U. Michigan survey fell to 92.7 from 96.2 due to uncertainty about the actual progress being exhibited by the US economy.
Still, traders were suspended in disbelief about the remarkable advance in confidence and did not react until after they digested the news that the Chicago Purchasing Managers Index rose for the second straight month to 55.7 from the previous 53.1. Not only did the headline figure exceed the forecast of 53.8, but also the new orders component increased to 62.6 in March from 59.5 in February. The Chicago PMI Employment component climbed to 43.1 in March from 36.3 in February, as the Inventories element also reflected a gain to 47.9 in March versus the prior 37.5. The Prices Paid Index remained unchanged at 51.2 in March from February.
One blemish in today's series of dollar-supportive data was the unexpected rise in US Jobless Claims to 394k in the week of March 23 from the previous revised 376k. The US 4-week Jobless average also climbed to 383,500 in the week of March 23 from the previous revised 380,250, hitting its highest level in 8 weeks. US continued claims mounted to 3,526,000 in the week of March 16 from the prior revised 3,443,000. While not hurting sentiment towards the US currency today, markets will indubitably be apprehensive about next week's release of the March labor report.
Finally, the dollar was underpinned by a record issuance of corporate bonds in March of nearly $75 billion with heavy demand from foreign investors. The large supply of paper is the result of companies attempting to lock in lower long-term rates before the Federal Reserve begins to raise rates.
The yen shed nearly half-a-yen to a session low of 132.70 against the dollar, gradually losing support derived from yen repatriation flows as the Japanese fiscal year draws to a close. Traders now await the release of the Bank of Japan Tankan survey that is expected to show its first improvement in 18 months as the diffusion index for large manufacturers rises to 35/36 in the latest quarter from the previous -38. Should the data come in-line or better-than-anticipated, it will likely be supportive for the Japanese currency. Nevertheless, with the floor from repatriation removed and investors' attention returning to Japan's economic problems such as deflation and non-performing loans, analysts believe the yen is on the brink of a sharp fall. Resistance is seen at 133.0, 133.50, 133.80 and 134.0. Support holds at 132.0, 131.70, 131.20 and 131.0.
The Swiss franc stumbled down nearly two-third centime to a 2-1/2 week low of 1.6860 against the cheerful dollar, undermined by the Swiss National Bank's comment overnight that it would remain generous with money market liquidity. Yesterday, the SNB lowered its repo rate to 1.39% yesterday in a maneuver aimed to weaken the franc. Upside capped at 1.6860, 1.690 and 1.6950. Support stands at 1.6810, 1.6760 and 1.670.
The downward pressure on Swissy pulled the euro lower by nearly one-third cent to a 3-week low of 86.98 against the dollar as well. The single currency is seen to trade range-bound ahead of the holiday weekend and until the release of next week's PMI, PPI, Services PMI, ECB rate decision and GDP data establish a direction for the euro. Support is viewed at 87.0, 86.80 and 86.30. Resistance is eyed at 87.40, 88.0, 88.40 and 88.70-- the 61.8% retracement of the move between the 90.63 high to the 85.63 low.
In contrast with the euro's decline, the pound actually gained one-third cent to reach a session high of 1.4258 against the dollar. Sterling benefited by its gains against the euro to a 3-week high of .6106 as results of a new poll on membership in the EMU indicated that support for the UK joining the euro was beginning to fade. Upside capped at 1.4285, 1.4325 and 1.4350. Support is seen at 1.4220, followed by 1.420, 1.4155 and 1.410.
US stocks closed mixed, with upbeat economic data countered by lowered revenue outlooks and a downgrade of 3M. Technology shares, however, posted gains led by Taiwan Semiconductor that announced it would increase its spending on new plants. The Dow fell 22 points to 10403 whereas NASDAQ climbed 18 points to 1845.
For the first quarter of this year, the Dow rose 3.8%, NASDAQ lost 5.4%, and the S&P 500 slipped 0.1%.
This week's remaining US indicators is personal income and consumption. Major economic data from the Eurozone consist of French unemployment rate, French PPI, and Italian CPI. The main economic releases due from Japan are consumer prices, household survey of expenditures, labor force survey, industrial production, housing starts and construction orders.