US dollar exchange rate remains on the defensive for many reasons

Foreign Exchange - Currency Outlook

Today we get the producer price index, probably a rise on the commodity price improvement over the past month, according to Bloomberg, which sees PPI up 0.2% after a drop of 1.2% in March. The forecast range is -0.6% to +1%. Tomorrow it’s CPI, also probably a positive number. We also get the usual weekly jobless claims, probably a rise by 610,000 in the week ended May 9 from 601,000 a week earlier. A big chunk will come from the Chrysler closing. This reminds us of another Shock on June 1, the due date of General Motors reorganization plan. This is only two weeks away and yet it’s not causing a stir. Some say a bankruptcy by GM is not "systemic," but we say that politically, it sure is systemic.

We know that uncertainty over the timing and extent of recovery is in doubt, and now the stock and oil markets are pulling back in recognition of it. The price of gold went way up, breaking a downchannel, and closed at $925.50, triggering the perpetual forecast of $1000. The problem with pooh-poohing that forecast is that it’s probably correct if we believe that many economies, including the US economy, will by-pass deflation and head straight for inflation.

Nobody ever knows how long a correction will last or how far it will go. Now that risk-aversion is driving the foreign exchange traders to buy dollars again, we need to watch equity prices and oil to figure out what happens next. We guess that the stock indices will continue to drop and yesterday’s move was not a one-day event, but the US dollar exchange rate remains on the defensive for many reasons. Covering short US Dollar positions is not the same thing as buying dollars outright, from a sentiment point of view.

We need to be nimble.


Pounds to US Dollars = 1.5230
Pounds to Euros = 1.1158
Euro to Pounds = 0.8957
Pounds to Australian Dollars = 1.9999

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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