October 17, 2009
The dollar extended its losses against major currencies during the past week, but it picked up on Friday after weak economic data and disappointing quarterly results of some big U.S. companies hurt risk appetite in financial markets.
Risk sentiment remains a key driving force in currency trading, analysts said. Weakness of the U.S. currency is likely to persist, as reports of housing start and existing home sales due next week are expected to provide further evidences that U.S. housing market is gaining strength.
A bunch of major U.S. companies reported their third-quarter results this week. The world's largest chip maker Intel said on Tuesday that both its profit and revenue in the third quarter fell from a year ago, but still beat expectations. Intel forecasted fourth-quarter revenue well above Wall Street expectations, giving investors hope of a recovery in the technology sector.
JPMorgan Chase, the second largest U.S. bank, said on Wednesday that it earned 3.6 billion dollars in the quarter from July to September, much better than expected. As the first major U.S. bank to report results of the last quarter, JPMorgan Chase helped push the Dow Jones Industrial Average above 10,000 on Wednesday, the first time in a year.
Rising hopes for recovery drove the dollar lower against higher-yielding currencies, with the euro hitting a 14-month high of 1.4969 dollars in Thursday trading. But risk appetite faded later as results of other companies failed to satisfy investors whose expectations had risen in previous sessions.
Goldman Sachs Group reported a profit of 3.03 billion dollars last quarter, much better than expected, but its investment banking revenue fell. Citigroup reported that its loss per share in the third quarter was smaller than a year ago, but credit losses remained high.
Bank of America, the largest bank in U.S., reported a bigger-than-expected third-quarter loss on Friday. The bank wrote down almost 10 billion dollars in bad loans, about 1 billion dollars more than in the previous quarter. Quarterly results of conglomerate General Electric, technology giant IBM and chipmaker AMD were also disappointing.
Economic data released during the past week are mixed. U.S. initial claims of jobless benefits fell by 10,000 to 514,000 last week, the Labor Department reported on Thursday. Both the four-week moving average of initial claims and continuing jobless benefit claims edged lower.
A separate report from the Labor Department showed U.S. consumer price index (CPI) in September rose 0.2 percent from the previous month and fell 1.3 percent from a year ago. Core CPI, excluding food and energy, also rose 0.2 percent month-to-month. The report didn't show deflation, not did it show sufficient inflation pressures.
U.S. consumer sentiment index fell to 69.4 in October from 73.5 in September, according to a latest survey released on Friday by the University of Michigan and Reuters. The decline reverses about half of September's improvement. The assessment of the economic outlook deteriorated sharply. The consumer spending is not strong enough yet to be a driving force of economic recovery, analysts said.
The dollar's decline against most major currencies took a break on Friday amid improved safety-haven demand and profit-taking activities. The greenback was also helped by a report showing that foreign demand for U.S. financial assets remains strong. Foreign net inflows into long-term U.S. securities were 28.6 billion dollars in August following a net inflow of 15.3 billion dollars in July, the U.S. Treasury reported.
However, the dollar kept falling against the pound on speculation the Bank of England policy makers may pause their asset-purchase program in the near future as the economy shows signs of recovering from the recession.
The U.S. Federal Reserve Vice Chairman Donald Kohn reiterated on Tuesday that U.S. benchmark rates would remain near zero amid slow recovery and high unemployment. Minutes released on Wednesday revealed disputes among Fed officials on their latest monetary policy meeting in September. Policymakers of the central bank had a wide range of views about economic outlook.
A top White House adviser repeated the U.S. administration's commitment to a strong dollar on Thursday. A strong dollar is in the United State's best interest, said National Economic Council director Lawrence Summers. But few economists are convinced, with some believing that the Obama administration is prepared to tolerate the dollar's weakness quietly.
The dollar will extend its drop versus the euro over the next two to five years, falling as much as 20 percent to an all-time low under a widening U.S. budget deficit, Harvard University's Professor Niall Ferguson said.
The euro bought 1.4899 dollars in late Friday New York trading, about 1.3 percent higher than a week ago. The British pound rose 3.3 percent to 1.6353 dollars. The dollar fell 0.6 percent during the past week to 1.0381 Canadian dollars, and fell 1.4 percent to 1.0179 Swiss francs. It rose 1.1 percent to 90.85 Japanese yen.