Dollar Rises Thursday On Safe-Haven Demand

The dollar rose on Thursday on safe-haven demand after renewed eurozone debt fears lowered risk appetite and QE3 expectations moderated. The title of Ben Bernanke's speech at Jackson Hole is: “Monetary Policy Since the Crisis,” and seems to imply a looking back rather than forward, possibly lessening the chance he might use it to promote a new round of QE.

On the data front Personal Consumption Expenditure yoy in July headlined the calendar and showed a fall to 1.6% from 1.8% previously, which was below analysts expectations of 1.7%. Initial Jobless Claims - which were expected to fall to 370k – remained unchanged at 374k. Personal Income remained the same at 0.3% and Personal Spending rose to 0.4% from 0.0%, Continuing Claims fell, but not as much as had been expected: overall the data represented stagnation rather than improvement or decline.

EUR
The euro traded higher in the morning but then unexpectedly fell on fears over France and Spain after various hedge funds were reported as treating France as "peripheral" and following comments from Rajoy that Spain would delay a decision on seeking a bailout. The dollar strengthened as investors saw less chance of QE3 at Jackson Hole after expectations Bernanke might wait till after August Payrolls.

On the data front German Unemployment Change showed an increase of 9k when a 7k increase had been expected, the Unemployment rate, however, remained the same at 6.8%. Eurozone Consumer Confidence remained at -24.6; the eurozone Business Climate Indicator (Aug) fell to -1.21 from -1.27; Eurozone Economic Confidence fell to 86.1 from 87.9; Industrial Confidence fell more deeply to -15.3 from -15.1 although not as deeply as expected; Services confidence fell the most to -10.8 although Italian Business Confidence rose a basis point in August.

GBP
The pound lost ground on Thursday after lacklustre data reignited hopes of the Bank of England increasing QE to revitalise the economy but led to a weakening of the pound as a dilutive side-effect. Consumer Credit in July fell by 0.2bn from 0.1bn pounds in June when analysts had expected a rise of 0.5bn. Other data was better, however, with Mortgage Approvals rising above expectations to 47.3bn from 44.1bn when a rise to 47.0bn had been expected.

Lending on homes also rose more than anticipated in July, to 1.1bn from -0.2bn previously. Money Supply M4 Ex IOFCs 3m annualized (Jul) rose to 5.0% from 2.9%; M4 mom rose to 0.5% from -1.6% in July; M4 yoy in July fell by -4.6% when -5.2% was the previous result.

JPY
The Japanese yen rose the most on Thursday after risk appetite fell on renewed sovereign debt fears after various hedge funds said they were now treating French debt as "peripheral" and expected current low yields not to hold after worsening fundamentals come to light. Additional uncertainty came from Spanish PM Mariano Rajoy, who said Spain had not yet made a decision on whether to request a bailout.

The dollar rose but not as much as the yen as some investors wished to avoid complete uncertainty by opting for the "safer" yen ahead of Jackson Hole. It could also be that Mario Draghi's opting out because of a heavy workload was re-interpreted as a negative sign and an emergency is on the horizon. There are still a lot of "ifs-and-buts" in relation to the bond-purchase scheme as Germany still opposes and its constitutional courts continue to argue about the legality of such measures. With so much uncertainty the yen has a strong outlook.