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About GAIN: News & Events |
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Dollar Mixed, as Soft-Patch Debate Continues
Dow Jones, May 25, 2005
The dollar was weaker against the euro after a stronger-than-expected headline durable-goods figure reignited a debate over whether the soft patch in U.S. economy has ended.
The euro was up 0.3% at $1.2605 in late trading, further supported by market rumors of major purchases of the single currency by a large Asian market player, according to Refco currency analyst Mike Malpede.
The dollar gained 0.2% to 107.68 yen, below an intraday high of 107.88 yen.
Orders for durable goods rose 1.9% in April, contrasting with a Dow Jones forecast, based on a poll of economists, for a 1.5% increase. However, other surveys set much lower estimates for the pace of increase.
The durable-goods report was viewed by Bank of New York currencies analyst Michael Woolfolk as an indication the soft phase in the economy is over, although he added some regional weakness persists in manufacturing, particularly in the Detroit auto industry.
"We're very encouraged and find that the report falls in line with other recent strong economic reports," Woolfolk said, pointing to recent strong housing, jobs-creation and retail-sales figures.
On the other hand, High Frequency Economics chief U.S. Economist Ian Shepherdson found signs of economic weakness in the durable-goods report, including the fact that subtracting transportation orders, there was a 0.2% decline in orders and slowing inventory gains.
"We expect no near-term improvement; the soft patch is not over," Shepherdson said.
Brian Dolan, head of currency research at Gain Capital, pointed out that transportation is an extremely volatile factor that includes such factors as train orders and other big-ticket items.
"Orders, big items, they can come off the assembly line and unduly influence the monthly number," Dolan said. "So the market really looks more at the core excluding the transportation number and that disappoints expectations."
The argument that the economy is strengthening was supported by news that sales of new U.S. houses were essentially unchanged in April, rising 0.2% to a seasonally adjusted annual rate of 1.316 million, the highest sales rate ever.
Overnight trade data released by Japan's Finance Ministry hurt the yen on its face, but strategists noted the details had a neutral implication. Japan's customs-cleared trade surplus fell 10% from a year earlier in April to 962.8 billion yen, as exports rose 7.8% and imports jumped 13%.
"The declining trade surplus is not a particularly useful indicator of the state of the economic cycle, as it largely reflects the rise in import prices," wrote Richard Jerram, chief Japan economist for Macquarie Securities.
According to ministry's figures, all of the import growth came from higher prices, rather than increased volumes. Jerram said, "In real terms, the trade surplus is roughly flat."
The Bank of Japan released minutes of its April policy-board meeting, which showed Toshikatsu Fukuma was the lone voice calling for a monetary-policy change. He wanted the central bank to lower its account-balance target to a range of 27 trillion yen to 32 trillion yen from the current 30 trillion yen to 35 trillion yen, arguing the liquidity risks of the nation's banks were fewer and the financial system was more stable. But the other eight board members voted against his proposal.
The BOJ said Friday it would maintain the liquidity target, but also said it would allow liquidity to fall below the target level.
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Overview