The sense of anti-climax was palpable in the currency markets Wednesday.
Traders were on tenterhooks awaiting US durable goods orders data, which have gained importance as an indicator of the strength of the all-important consumer sector.
But when the data came they were so inconclusive that they changed few perceptions as to the rate of US monetary tightening, and thus the medium-term path of the greenback.
Orders rose 1.7 per cent month-on-month in July, beating the expected 1 per cent, but stripping out transportation they rose just 0.1 per cent, a thirteenth of the forecast rate. However, a significant upward revision of June’s numbers ensured that dollar bears were unable to get the upper hand.
Paul Ashworth, economist at Capital Economics, took the bearish view, labelling it a “disappointing report”. He said: “The lacklustre core orders figure provides a clear indication that this soft patch is turning out to be more than just a temporary hiccup, contrary to the assurances from Fed chairman [Alan] Greenspan.” But Michael Woolfolk, senior currency strategist at Bank of New York, drew a bullish conclusion, noting that stripping out a 16.2 per cent slide in defence spending, durable goods orders rose a healthy 2.7 per cent. “This provides the smoking gun evidence that Greenspan’s ‘soft patch’ in the private sector may indeed be just as transitory as he had hoped for,” he argued.
With these arguments largely cancelling out, the dollar dipped 0.3 per cent to $1.2101 against the euro and 0.4 per cent to $1.7977 against sterling, but firmed 0.4 per cent to Y110.22 against a softer yen.
The yen slid after Mr Greenspan demonstrated his ability to move almost any asset price by warning that high oil prices may “exert a significant drag on the Japanese economy”.
The Swiss franc also tracked lower, slipping against sterling and the euro to SFr2.2863 and SFr1.5393 respectively, after the KoF economic barometer fell back to 0.98 in August, missing expectations for a reading of 1.09. ABN Amro pointed the finger at the twin perils of oil prices and sluggish German growth.
In spite of this, Benedikt Germanier, forex strategist at UBS, argued that this still implied GDP growth close to 2 per cent, raising the prospect of 50 basis points of tightening by the Swiss National Bank by December and potentially pushing the Swissie higher.
The South African rand bucked its recent losing streak, firming 0.8 per cent to R6.6488 against the dollar as consumer inflation fell to 4.2 per cent in the year to July from 5 per cent a month earlier. The fall helped soothe fears that the nation’s recent rate cut was motivated by political factors, adding weight to the central bank’s claim that softer inflation had allowed scope for lower rates.