U.S. Dollar Fails to Find Support on Drop in Initial Jobless Claims





The pace of expansion in the manufacturing sector for the Asian giant slowed to 54.4 from 55.3 weighing on risk appetite. Indeed, the PBOC’s recent steps to cool their economy before it overheats could spell the end of robust activity from the engine of the global recovery. The Australian dollar has taken the brunt of the punishment, after posting a record all-time high of 1.0197 the AUD/USD slipped to a low of 1.0131. The Swiss Franc was the primary beneficiary of the flight to safety, with the currency posting fresh record highs against the dollar, euro and pound.

A virtually empty European docket left the Euro to continue its bullish trend before the positive jobs data sparked greenback support. A rise in Italian business confidence to 103 from 101.7 in November reflects the lack of concern that we have seen from the region’s business leaders over the debt crisis which is helping drive underlining support for the single currency. ECB member Ewald Nowotny was on the wires today stating that the central bank remains focused on price stability and that there will be a mechanism in place by 2013 to help avoid the potential for future crisis. Meanwhile, a report from the monetary authority revealed that loans to households and businesses rose 2% from a year earlier as confidence in the recovery continues to grow. If concerns over sovereign debt remain quiet then we could see the single currency extend its current rally into the New Year on the strength of the sustainability of the recovery.

The British Pound fell sharply overnight as it remains plagued by U.K. growth concerns, with the GBP/USD falling to 1.5402 and nearly erasing all of its gains from yesterday. The pair continues to remain range bound as rising inflation has kept the BoE handcuffed and the lack of potential stimulus in the face of harsher austerity measures has significantly dimmed the outlook for the domestic economy. The pair may remain range bound with the greenback losing favor as well, by more signs of an improving labor market in could see the dollar strengthen against the pound.

The greenback was mixed on the day with it losing ground to the Euro, Franc and Yen whiling making up ground versus the Aussie and Sterling. The strong labor data was only able to generate brief support as market may be waiting to see the upcoming housing and manufacturing data. The pending home sales and Chicago PMI readings may generate the last bout of volatility before the end of the year. Manufacturing in the Midwest is forecasted to have slowed to 61.0 form 62.5 but remains well in expansionary territory and a sign that the sector will continue to contribute to GDP. Meanwhile, the housing sector has come under scrutiny with analyst forecasting another 5% drop in prices. Therefore expectations for an increase in pending home sales will fail to remove those concerns and could drag the reserve currency lower on the day.