Initial Claims Stoke Dollar Reversal

Market Trends - 26/03/2015

After weakening substantially since the FOMC Statement, the dollar looks to be in the process of finding firmer footing following the latest unemployment data. Today’s initial jobless claims dropped to the lowest level in 5-weeks as winter weather abated causing new claims for jobless benefits to drop below the important 300,000 threshold. Claims printed at 282,000 on estimates 290,000 new jobless claims with the 4-week moving average moving below 300,000 for the first time since February 26th. Although analysis and pundits are quick to blame the weather for any economic data that misses estimates by a wide margin, the fallacy in this argument was easily evident following the latest new home sales data. The American Northeast which was most broadly affected by the storm systems that ravaged the coast recorded the highest gains in home sales in the latest period. While not yet out of the woods, initial claims point to improving characteristics for the labor economy despite the headwinds arising from surging layoffs in the oil and gas industry.

 

Next week will see the release of important labor market statistics like the ADP payroll report, nonfarm payrolls, and the unemployment rate. With just over a week until the unemployment number, expectations are for the rate to stay constant at 5.5% with payroll gains of 249,000. Any further improvements in these metrics are likely to solidify a reversal in the dollar that might be presently underway. After losing substantial ground against major currency peers, today’s employment data might be the first catalyst for a resumption of the trend higher in the dollar. Initial jobless claims might be the first shot across the bow as the dollar struggles to gain traction versus peers. The reaction has been felt in currencies as well as commodities, with gold and oil retracing some of the recent upside exuberance. Tomorrow’s GDP number will prove a pivotal moment as any further downward revisions to growth should negatively impact the outlook and expectations of higher interest rates.

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