The dollar was higher against most of the majors in<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />New York action even as economic data purported a gloomier picture for the worlds largest economy. Rising to above the C$1.1600 handle against the Canadian dollar, the greenback advanced on the euro, leading the pair lower to 1.3104, and the British pound, declining to 1.9545.
The momentum is likely to continue with daily fluctuations minimized on an absence of market participants in the market. Notably, the US dollar made significant gains against the Japanese yen following further carry trade initiation subsequent to comments by Governor Fukui. Although noting that consumer prices will likely rise, the Bank of Japan head stated that the increases will be gradual. The statements gave no indication of the future direction of rates, however, kept traders on edge as the belief remains that the underlying currency remains vastly undervalued.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Economic data was disappointing on the release of the Richmond Fed survey. Similar to the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Chicago area report, the Richmond survey tallies manufacturing activity in the immediate district and is used in conjunction with the headline ISM survey. According to the Federal Reserve Bank of Richmond, manufacturing activity plummeted in the month, offering a contractionary suggestion. Dropping to a negative 6 print, new orders and production dipped along with employment prospects. Notably, the wage costs component also declined lending to a bearish outlook for the region. The only bright spot seemed to be the expectations component on business prospects. Nonetheless, the overall report looms as a heavy negative on the economy as it is likely that Chicago area and ISM reports will be reflective of the Richmond survey. Dollar bearish, the report is also likely to strengthen the case for dollar short sellers in the market ahead of the New Year.
Stock markets were higher, however, as prospects of lower interest rates spurred equities along with climbing commodity prices. With gold bullion higher, raw material producers benefited on the day, especially issues in Newmont Mining Corp., the third largest gold producer. Gold future contracts rose by 0.8 percent to $627 a troy ounce in New York. On the interest rate side of things, bullish equity traders were spurred on by slumping sales for the holiday, likely to boost the notion of a justified rate cut from Federal Reserve policy makers. According to MasterCard Inc., growth in retail sales during the holiday season slowed, climbing less than this time a year ago. For the year, retail sales in the US during the holiday season increased a modest 3 percent as a slowing housing market and higher energy prices are crimping consumer spending. Comparably, the figure pales in comparison to a 5.2 percent increase in 2005. Ultimately, with consumption lower, one of the pillars supporting the US economy throughout 2006, the Federal Reserve may in fact entertain the idea of cutting rates ahead of schedule. The notion would boost company bottom lines and hopefully spur further domestic spending. Additionally, although dollar negative, the idea is a boon for stocks as it would support near term earnings and lower the cost of money. As a result, the market climbed for the first time in four days with the Dow Jones Industrial Average rising 46.38 points to 12,389.60 and the broader S&P 500 adding 4.21 points at 1,414.97.
Bonds were unresponsive to the shift in sentiment towards lower interest rates as the yield on the 10-year benchmark bond rose a modest 1 basis point to 4.61 percent from the 4.60 percent close on Friday.
