Dollar Draws Breath Thanks to Upbeat Economic Data

29 January 2003

The US dollar, which has been taking a hammering of late, on Tuesday gained some respite as encouraging economic data halted the scurrying of speculators.

Although consumer confidence slipped back slightly, the home sales sector was buoyant and the general run of indicators was far better than expected – but although this stemmed the dollar’s dive, to the surprise of many the currency bookies held back from taking a profit.

“The dollar's feeble response to this good data should make traders more inclined to sell at the moment,” said J P Morgan currency strategist Rebecca Patterson, scratching her head in discombobulation

Earlier this week the euro was trading at around $1.0907, a fraction below its highest ever level against the dollar, reflecting a relatively benign depreciation that many economists see as good news and a boost for struggling US exporters.

According to the head of economics at Goldman Sachs, Jim O'Neill, a weaker dollar is also good news for the world economy, opining that a strengthening euro and yen will help to kickstart more robust economic reform.

But his opposite number at ING Financial Markets, Mark Cliffe, disagrees: “The weak dollar is boosting US international competitiveness at the expense of the rest of the world. In other words, the causation also runs from the dollar to stock market performance, not just from stocks to the dollar.”

Data sourced from: Financial Times; additional content by WARC staff