Spread Betting: US Dollar Still Looking Weak

Posted on | August 11, 2010 |

Dollar still on the retreat after weak employment figures.

Sterling added another two cents over the last week. Most of the gains came in the first two days with the rest of the week spent in consolidation. It opened in London yesterday morning at the top of its range facing strong psychological overhead resistance.

It was a strange sort of a week for sterling, particularly in the spread betting markets. Despite making one small error after another it came through virtually unscathed. Except against the euro, where it lost a couple of dozen ticks, sterling was either steady or higher this morning compared with last Monday’s starting level. Its best result was the two cents it gained against the US dollar.

While sterling had another good week the dollar had another bad one. Where investors were ready to forgive the UK economy its occasional wobble they seemed to watching, hawk-like, for any sign of weakness in the US.

They did not have to look too hard. Monday’s manufacturing sector PMI, like Britain’s, went backwards from 56.2 to 55.5. Tuesday’s personal income and personal spending figures were both zeros; neither had changed between May and June. Factory orders fell by -1.2% in June. Pending home sales (contracts exchange but yet to complete) were down by -2.6% in June after a -30% fall in May. The one chink of light was a half-point improvement in the services PMI, which went up to 54.3 in July and was worth a quick half-cent to the dollar.

One chink was not enough though, and the benighted dollar ended the week on a low note after the important monthly Employment Report delivered much softer figures than expected. The loss of 131k jobs was twice as bad as the market had been expecting and there was no easy way to put a positive spin on it.

Even harder to gloss over was the downward revision to June’s non-farm payrolls figure; instead of the -125k announced a month ago there were -221k job losses. Comparing net outcome with net expectations, that meant 162k fewer working people than the market had anticipated.

To put it another way the outcome was two and a half times worse than predicted. Even the unchanged 9.5% unemployment rate was suspect (as it is in Britain and elsewhere) because it fails to take into account those who have given up on finding a job and dropped out of the reckoning - this is something that the online spread betting markets did not fail to notice.

In the last couple of weeks sterling has overcome everything that has been put in its way. Or, more accurately, the dollar has fallen through every line of support that might have held it steady. Sterling’s biggest test this week will be Wednesday’s UK employment figures. Over the last three months unemployment has been going down.

If investors hear the same story again they should be able to maintain their modestly positive attitude to sterling but they would be far less enthusiastic about any reversal of that trend.

FX Trading Update by www.moneycorp.com where you can open a free, no obligation Trading Facility.

Comments