Labor also said the four-week average of new claims rose by 6,000 to 630,500, also the highest level since April 18. The four-week average is considered a more reliable figure because it smoothes out distortions caused by anomalies.

Obviously, “the labor market is not responding to the so called ‘Green Shoots’,” wrote Steve Ricchiuto, chief economist at Mizuho Securities. And the layoffs at Chrysler are likely not even factored in yet.

April wholesale inflation data were in line with expectations. The figures showed a 0.3% monthly rise in the producer price index. Core PPI, which excludes food and energy prices, rose 0.1%.

“Concern over U.S. data quickly faded as market sentiment quickly reasserted its dominance over fundamentals,” wrote Michael Woolfolk, of the Bank of New York Mellon (NYSE:BK).

Source: Dollar Slightly Lower

I have searched the news wires this morning and can’t find any good reasons for the dollar’s turn around other than it had simply gone too far too fast. Mike Meyer and I were talking about this yesterday morning, as we were looking at the trading screens in amazement. The dollar’s move down over the past two weeks was even faster than the move up earlier this year. Chuck had warned readers all during the dollar rally that the strength was only temporary, but the reversal was just too quick. This move back up is healthy for the markets, and will allow investors another opportunity to move back in.

The US jobless numbers were better than expected as they dropped to 554k from an adjusted 575k last week. The continuing claims also fell to 4,384,000 out of work. Leading indicators fell .4% during November, and Octobers number was revised to -.9%. So while all of these numbers could be spun as positive (not quite as bad as the last ones), they still reflect an economy which is continuing to falter.

Treasury Secretary Paulson will probably be heading back to Congress to claim the second half of his $700 billion bank rescue plan. I think he is probably hoping Congress is in a giving mood with the upcoming holidays and will go ahead and let loose of the additional funds. But Paulson may have some trouble securing the additional funds as lawmakers have warned the Bush administration it must come up with a new effort to aid homeowners and get aid directly to their constituents.

Paulson is also probably worried that congress may pull back some of the promised funds and earmark them for the new administration’s stimulus package. So now we have the present and future administrations fighting over who is going to get to spend the taxpayers money, with Paulson doing his best to get it all spent before heading off into the sunset. Chuck spent a tough day as the eye doctor yesterday, but still sent me the following note:

“As reported by the Wall Street Journal…

“Obama’s economic team is crafting a stimulus package to send to Congress of $675 billion to $775 billion over two years, according to transition officials. The transition team has conveyed the figures to Capitol Hill, where the package is likely to grow as it works its way through the House and Senate. Obama aides hope to keep the package below the trillion-dollar mark, as they fear being accused of adding too much to the country’s long-term budget deficit.”

I laugh! As if! As if $775 Billion “won’t add too much to the country’s long-term budget deficit”! I give up… I really do… The Gov’t thinks we are all BUFFOONS! They really do, folks… They are taking us as village idiots, thinking that if they keep it below $1 Trillion, we “won’t notice”! ”

Not to be outdone by the US, the Bank of Japan cut its benchmark interest rate to .01 from .3%. The move puts Japanese target rates back below the new target for US fed funds. The Japanese central bank also said it will continue using ‘quantitative measures’ to inject capital into the financial markets. The yen is unchanged on the day, but we saw a pretty large amount of selling by our investors yesterday.

The Chinese Renminbi headed for a second weekly gain as Chinese officials signaled they won’t pursue a weaker currency to help exporters. Many thought the slow and steady appreciation of the Renminbi had come to an end as Chinese officials let the Renminbi move lower during the first part of this month. China’s trade surplus which widened to a record $40.1 billion in November, continues to support a stronger Renminbi. Consumer prices in China rose just 2.4% in November from a year earlier, the smallest increase in almost two years. The easing of inflation pressures will allow China to lower interest rates to make sure growth stays above their 8% target. All indications support a further slow and steady appreciation of Renminbi.

Currencies today 12/19/08: A$ .6819, kiwi .5745, C$ .8155, euro 1.3982, sterling 1.5036, Swiss .9049, ISK 176.5, rand 9.7813, krone 7.0467, SEK 7.7980, forint 189.78, zloty 2.9152, koruna 18.8295, yen 89.24, baht 34.49, sing 1.466, HKD 7.75, INR 46.255, China 6.8457, pesos 13.17, BRL 2.3927, dollar index 80.869, Oil $34.39, Silver $10.67, and Gold… $835.34

Source: Dollar Bounces Back Up

Chris Rupkey, senior economist at The Bank of Tokyo-Mitsubishi in New York, represented general market sentiment as he hailed the selection: “A fantastic choice to help lead the financial markets out of the wilderness,” Rupkey said. “A crisis manager par excellence who will hit the ground running as he has been on the case since the global funding crisis began way back in July 2007.”

We’ll have to wait and see whether having a key Fed official proves a smart choice to be in charge of the bailout, but at this point even Joe the Plumber seems like a better option than Goldman’s Hank Paulson, who now seems merely confused.

And speaking of Goldman Sachs, economists at the investment bank forecast that the U.S. unemployment rate will reach 9%, from 6.5% currently, by the end of 2009, and that the economy will shrink in each quarter until mid-2009.

If unemployment does go that high, it would be “unequivocally the worst single downturn on record since World War II,” Goldman’s analysts wrote.

Source: Dollar lower against euro - Goldman predicts 9% unemployment.

“Dollar and yen were largely firmer in thin U.S. holiday trading, as risk aversion crept back up,” wrote currency analysts at Brown Brothers Harriman. “Optimism on China’s stimulus plan gave way to a more sober global economic outlook.”

News trickling in from elsewhere wasn’t particularly heartening. Across the pond, the British Retail Consortium’s monthly barometer reported sales that fell 2.2% on a same-store basis in October, as compared with the same month of 2007. That marked the first drop in total sales since April 2005.

And across the bigger pond, China reported that exports grew 19.2% in October from a year earlier. Doesn’t sound bad, but it was taken as a negative, since that was down from a 21.5% increase in September.

Inflation in China is also easing. The country’s consumer price index rose 4% in October, year over year, decelerating from a 4.6% rise in September. Inflation is down from its high of 8.7% in February, a sign of the slowing economy there.

Source: Dollar whacks euro -  China stats show slowing economy

The only question was how quickly the money would hit the streets, and Jing Ulrich, J.P. Morgan Chase, said that, “With a healthy fiscal surplus and low government debt, China appears to have considerable resources to ramp up its fiscal spending in a short period of time.”

Weekend news of the Chinese package had lifted equity markets around the world and revived risk appetite, but only momentarily in the U.S. as domestic stock markets ended the day down and the buck—which has been a primary destination for the risk-averse for some time now—gathered some late steam.

China’s plan “could well form the starting point of a coordinated fiscal-stimulus plan as world leaders [the G20] gather in Washington later this week,” wrote strategists at Lloyds TSB.

And it could prove to be a defining moment in the global crisis, thinks Neil Mellor, currency strategist at Bank of New York Mellon. But Mellor wrote that “even if this optimistic scenario ultimately proves to be correct, the inevitable and continued deterioration in global economic data may prove to be a rather overwhelming test of the market’s mettle in the meantime.”

Source: Dollar cuts early losses -  China’s stimulus package the talk of the trade

“Today might be the day that marks the beginning of a legitimate U.S. dollar correction,” wrote Jack Crooks, president of Black Swan Capital.

“We’ve been open to this potential for the last several weeks, as we think a lasting correction is due before the U.S. dollar can start on its next powerful leg of what we are expecting could be a multi-year bull market,” Crooks said.

With the election finally over, many analysts are saying the result isn’t likely to be a major driver for currency markets.

“Implied volatility has continued to fall, suggesting the euro could move higher in coming days with market participants likely to look past today’s U.S. presidential elections toward what could be horrendous jobs numbers on Friday,” wrote currency strategists at Brown Brothers Harriman.

The euro surged despite near-universal expectations that the European Central Bank will cut interest rates on Thursday. Also predicted for Thursday is a cut in British rates, but the pound rallied anyway, as well.

Source: Dollar is Hammered

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%.

Source: Dollar holds gains despite grim manufacturing data -  But the numbers from the eurozone are equally bad

“Flows and technical factors are driving” the dollar, wrote currency strategists at Brown Brothers Harriman. “Demand for the dollar has been much stronger in Asia and Europe than in the U.S. in recent sessions. That may reflect the fact that fewer U.S. investment funds hedge equities than do Asian and European funds.”

And, as the stock market closes its worst month since October of 1987, many are still taking refuge in the buck.

The day’s numbers were grim, beginning with the Commerce Department reporting the biggest drop in consumer spending in four years. Spending fell 0.3% in September after being flat since June. Year over year, spending was down 0.4%, the first such decline since the recession of 1991.

In addition, the University of Michigan/Reuters consumer sentiment index dropped a record amount in October, plunging to 57.6 from 70.3 in September. The index projected that the holiday spending season will be the “bleakest” since 1980.

“The U.S. consumer is in major trouble, with wage and salary income growth evaporating, credit extremely tight or unavailable, home prices continuing to decline, household balance sheets stressed, and food and energy costs consuming a large share of budgets. A consumer-led recession is upon us, and it promises to be a serious one,” wrote Josh Shapiro, chief economist at MFR.

Finally, the Chicago Purchasing Managers reported the Chicago Business Barometer plummeted to 37.8 in October, its lowest level since May 2001.

Source: Dollar moves higher despite plummeting consumer spending – Sentiment index also plunges.

The Fed’s decision was unanimous. Cited was the fact that the pace of growth has slowed “markedly” and concern that financial market strains could put the economy at greater risk. “The intensification of financial market turmoil is likely to exert additional restrain on spending, partly by further reducing the ability of households and businesses to obtain credit,” the statement said.

In addition, “In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability,” meaning that inflation is no longer even on the radar screen.

The Committee also said it “will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.” That leaves open the tantalizing possibility of yet another cut in the future.

How low can they go? Lower, thinks Ian Shepherdson, chief U.S. economist at High Frequency Economics, who said the “downbeat” statement from the Fed caused him to pencil in another half-point cut at the Fed’s December 16 meet.

Source: Dollar sinks against euro -  Fed rate cut fails to support buck

“Now more than ever, the Fed’s decision could turnaround the currency and equity markets,” wrote Kathy Lien, of GFT Forex. “The recent strength of the U.S. dollar will add pressure on the Federal Reserve to make a larger interest rate cut but everyone needs to realize that the rate cut by the Fed this week will not be their last.”

Perhaps not, but if the expected cut of half to three-quarters of a point materializes, there won’t be much further to go. Some are even saying the rate could go to zero a la Japan, in a desperation move to pump up the economy.

That the economy needs plenty of pumping was confirmed by yesterday’s report from the Conference Board that consumer confidence plunged to 38 in October from 61.4 in September. That far exceeded economists’ expectation for a drop to 52, and marked an alltime low in the index’s 41-year existence.

Expectations turned “significantly more pessimistic,” the board said, with the percentage of consumers expecting business conditions to worsen over the next six months rising to 36.6% from 21%, and those expecting fewer jobs rising to 41.5% from 26.9%.

Consumers’ “earnings outlook, as well as inflation outlook, is also more pessimistic, and this news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season,” said Lynn Franco, director of the Conference Board Consumer Research Center.

Source: Euro rallies against dollar -  All eyes on the Fed