NEWS / Foreign Exchange

Daily FX Commentary

Dollar correction

There is scope for a correction, but the dollar's lack of yield support will remain a key short-term barrier to a more substantial recovery.

The dollar remained on the defensive on Wednesday and, despite a temporary advance after the US durable goods data, the US currency weakened to near record lows against the Euro at 1.3665 before a slight recovery to 1.3640. The US currency remained subdued at close to 1.3645 in early Europe on Thursday with the dollar's trade-weighted index at a record low.

The US housing data remained generally weak with the recovery in new home sales held to 2.8% in March to give an annual rate of 0.86mn from a downwardly-revised 0.84mn the previous month. There was, however, a drop in inventories over the month while prices held firm which suggests some stabilisation in underlying conditions.

US durable goods orders rose 3.4% in March with a 1.5% underlying increase while investment spending also rose firmly. There is some evidence of a recovery, but the improvement follows a series of weak releases. Overall confidence in the US economy will remain fragile at best in the short term, but only a small shift in expectations could trigger a significant correction given the depth of negative sentiment.