Dollar Holds Gains Despite Grim Manufacturing Data
Nov 4th, 2008 | By Doug Casey | Category: Financial NewsIn the currency market, the dollar moved higher again vs. the euro. Late Monday, the euro was trading at $1.2641 vs. $1.2751 on Friday. “There is still strong underlying demand for the U.S. dollar,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
Is it sustainable, though? “The major force in the capital markets, especially in the foreign exchange market, is the deleveraging process,” Chandler said. “And the deleveraging process is one in which they [investors] have to buy the dollar they previously sold.”
The buck held up despite data showing that U.S. manufacturing firms experienced the worst level of output in 26 years. The Institute for Supply Management said its factory index fell to 38.9%, the lowest since 1982, from 43.5% in September. That was far below conomists’ expectations that the index would decline to 41.5%.
But then, the news from across the pond isn’t any better. The closely-watched Markit purchasing managers index for the euro-zone manufacturing sector fell to 41.1 from 45.0 in September. A figure of less than 50 indicates a contraction in activity.
In response, the European Central Bank is widely expected to cut its key lending rate, now at 3.75%, when its governing council meets on Thursday. In addition, the Bank of England is expected to cut its key lending rate by at least a half-point to 4%, also on Thursday, with some even predicting an unprecedented cut of a full percentage point to 3.5%.
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