The end of the month can mean choppy trading in the foreign exchange market and that is why the dollar is higher against the euro but lower against the Japanese Yen, British pound and New Zealand dollar this morning. The 5% rally in the S&P 500 this month means that fund managers will need to sell the dollar to rebalance their portfolios but so far the impact on the forex market has been small.
This morning’s economic reports continue to paint a picture of a slow but steady recovery in the U.S. economy. Jobless claims rose back to 368k after 2 months of extremely low readings. With seasonal factors finally fading, claims are returning back to its December levels. So while the jump was large, it is not indicative of a significant deterioration in the labor market. The big news this morning was the 2.6% jump in personal income. At first this number suggests a major improvement in personal finances, but according to the Bureau of Labor Statistics, the increase was largely caused by lump-sum social security benefit payments. Personal spending growth on the other hand slowed to 0.2% from 0.4% which can be viewed as good for the U.S. economy because Americans are making more and spending less. They are also saving more according to the savings rate, which rose to its highest level since May 2009. The Chicago PMI report is due for release later this morning but as you can see by the reaction in the forex market, there has been very little reaction to the economic surprises.
Up North stronger Canadian growth drove the CAD slightly higher against the greenback. GDP growth increased from 0.1% to 0.3% in the month of November, which was the fastest pace of growth in 7 months. Considering that retail sales and trade deteriorated significantly according to the latest reports, it is hard to believe that this strength can be sustained.