Strong Rise In US Consumer Spending Lifts Dollar

The broad performer of the day in the currency markets is the US dollar, which got a lift in sentiment from mostly better-than-forecast economic data and the Fed’s hint of a rate cut pause. First of all, US consumer spending rose 0.4% in March, twice market’s expectations. This is an encouraging sign even as personal income slowed down, gaining a seasonally adjusted rate of 0.3%. Secondly, ISM manufacturing data for April was better than expected, with the headline index at 48.6 vs a prior 48.6. Even though it is still occupying the contraction zone, it is better than the forecast of 48.1. Today’s PCE data shows that inflation has accelerated, which is another factor why the Fed should consider leaving rates on hold at the next FOMC meeting.

I should think that the spark to the tinder of USD’s rally today is mainly supplied by expectations that the Fed may stop pressing the “Rate Cut” button at the next meeting. Even though we are seeing Euro longs unwinding today, the sentiment isn’t yet cemented in the ground as we are still waiting for the Month’s Biggest Lottery to be played out on Friday, which is the US non-farm payrolls. Thursday’s release of Challenger layoffs showed that layoffs announcements were up 27% year-over-year in April, to a shocking 90,015, compared to March’s 53,579 firings. The April number is the highest since September 2006. NFP for April is expected to show a loss of 75-78,000 jobs, the fourth month of job losses, and the jobless rate is forecast to rise to 5.2% in April, the highest level in three years.

US Jobless Claims

US initial jobless claims for week ended April 26 rose 35,000 to 380,000 from revised 345,000 the week before. This reading was worse than the forecast of 20,000 rise. The 4-week moving average fell to 363,800 vs 370,000 last time.

Forex Trading

After yesterday’s knee-jerk decline of the US dollar after the Fed rate cut, USD bulls are taking the opportunity Thursday to bid the dollar higher. After several failed attempts at piercing through stubborn resistance around 1.0430, USD/CHF finally broke above that level by 60 pips to a high of 1.0500, the expected upside target. EUR/USD is down below 1.5460 and could be heading towards 1.5400-10 next.

Friday:

Australia retail sales 0130 GMT

Germany retail sales 0600 GMT

Eurozone PMI manufacturing 0800 GMT

UK PMI construction 0830 GMT

US non-farm payrolls, unemployment rate 1230 GMT

US factory orders 1400 GMT

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