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Blowout Philly Fed Sends Dollar Higher

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It has been a quiet morning in the foreign exchange market with the dollar trading mixed against all of the major currencies. The price action in the financial markets suggests that investors are in a slightly better mood, with risk aversion easing modestly. U.S. economic data was mixed which is good enough because it means that we are seeing a slow and steady improvement in the U.S. economy. Manufacturing activity in the Philadelphia region accelerated in the month of December with the Philly Fed index rising from 22.5 to 24.3, its highest level since April 2005. The blowout Philly Fed number was extremely positive for the U.S. dollar because it reached levels not seen in more than 5 years, when the U.S. economy was expanding. Although most of the underlying components showed improvement, the decline in shipments and number of employees is a bit worrisome. Nonetheless, manufacturers in Philadelphia are optimistic about the economic outlook and expect activity to continue to expand over the next 6 months.

The housing market numbers on the other hand were mixed - reflecting continued weakness in one of the most depressed parts of the U.S. economy. Housing starts rose from 534k units to 555k units in November, which was a larger increase than the market had anticipated, but on a percentage basis, starts only rose 3.9 percent compared to a 6 percent forecast. Building permits remained sluggish, falling 4 percent last month. With credit still difficult to attain and interest rates rising, the housing market could have a tough time recovering in the New year. There are still a lot of un built, unsold inventory out there that will inhibit any major recovery in housing and discourage builders from filing for new permits and starting new projects. Meanwhile the current account deficit widened in the third quarter from -$123.2B to -$127.2B, the highest level since the fourth quarter of 2008. Jobless claims remain very low, falling from 423k to 420k last week. Continuing claims on the other hand rose from 4.2M to 4.135M.

ECB Steps Up Capital Base

Across the Atlantic, the European Central Bank announced that they will be increasing their capital by EUR 5 billion to EUR 10.76 billion at the end of the month to compensate for currency volatility, credit risk, interest rates and gold prices. With the central bank having to purchase government bonds of countries such as Portugal and Ireland, their losses have been growing along with their need to sustain their capital base. The action suggests that the ECB is worried about future losses, strain on government finances and the need to do more to more to protect the region from a sovereign debt crisis. The news should be positive for the euro because it indicates that the central bank is doing more to ensure that they will be able to handle future crises.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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