A run on the dollar the day before Thanksgiving feels vaguely like
It's a Wonderful Life
. But the greenback likely doesn't need an angel to pull it back from the edge of despair.
The dollar broke through some key resistance levels vs. the euro and the Japanese yen Wednesday. But as long as it only frays the outside edges of its trading range, the stock and bond markets will likely shrug off its dip. At least, that was the case Wednesday when the dollar fell to a 5 1/2-month low vs. the euro intraday, as the single currency brushed up against the psychologically important $1.30 level (the euro's closing high for the year was $1.2979).
The dollar rebounded slightly as the day progressed, leaving a complete breakdown an unlikely scenario, at least for the time being. The euro finished the New York trading day up 0.77% to $1.2942. The dollar fell 1% vs. the yen to 116.66 yen.
The dollar's weakness, and expectations for a larger drop, may be part of why the
Dow Jones Industrial Average
has outperformed in the rally since late July. In times of dollar weakness, investors often shift into large-cap, multinational companies that garner revenue from overseas sales, such as Dow members
On Wednesday, the Dow finished the day up fractionally to close at 12,326.95, while the
gained 0.2% to close at 1406.09. The
added 0.5% to close at 2465.98 on the day thanks to big percentage moves in tech components
A maelstrom of factors Wednesday contributed to burgeoning bearish sentiment for the dollar. Weighing on the dollar are expectations that the U.S. economy is weakening more sharply than originally thought and inflation is whipped, which gives the
more leeway to cut interest rates. On Tuesday, the White House revised down its forecast for economic growth, while Wednesday's reports showed weakness in the labor market, limiting the threat of wage inflation, and dampening consumer sentiment.
Across a variety of borders, hawkish talk out of the eurozone, strong consumer spending in France, and traders' chatter about foreign central banks diversifying their currency reserves has buoyed the euro. Strong Canadian inflation data combined with still-high metals and commodities prices boosts the Canadian and Australian dollars, and traders still believe the Bank of Japan will hike rates soon, if not this year, which strengthens the yen.
"The market is reading news for the dollar as negative, and the pre-holiday thinness of the market is exacerbating the price action," says Marc Chandler, senior currency strategist at Brown Brothers Harriman and a contributor to
Chandler believes the euro will not break through the $1.30 level, nor will the dollar break below 116 yen. One reason the euro is unlikely to surpass the $1.30 barrier near term is the danger in following the herd into the Thanksgiving holiday, Chandler says. U.S. and Japanese markets are shuttered Thursday, leaving a perfect opening for European finance officials to talk down the euro, leaving many traders hanging out to dry come Friday morning, he says.
Wednesday's U.S. economic news, which comes ahead of a week full of important economic data points, affirms the soft-landing scenario and puts another feather in the rate-cut cap.
Initial jobless claims, like the dollar, are also fraying the edges of their range. The jobless claims, which have presented a more accurate depiction of labor-market trends than the Bureau of Labor Statistics' non-farm payrolls report, rose 12,000 to 321,000 for the week ended Nov. 18. The move brings the four-week moving average to 317,000, the top end of its range for 24 weeks, according to Briefing.com.
For those investors and forecasters expecting a rate cut, the rise in jobless claims was the golden ticket. Goldman Sachs economist Jan Hatzius acknowledges in a note Wednesday that his call for Fed rate cut next spring is a minority view. But a rise in unemployment signaled by a rise in jobless claims or a drop in payrolls to below 100,000 new jobs per months are just the red flags he's looking for.
Hatzius must be secretly celebrating the dollar's response to the jobless claims data Wednesday. The report comes on the heels of rumors swirling through the currency markets that the October payrolls report will be revised downward from 92,000 and unemployment revised upward, from 4.4% to 4.6%, says Ashraf Laidi, chief foreign exchange analyst at CMC Markets U.S.
Also Wednesday, the University of Michigan revised its consumer sentiment survey to 92.1 from 92.3 previous and vs. expectations for an upward revision to 93.0.
Even with the flat returns on the major indices Wednesday, there were some dramatic moves in the market ahead of the Thanksgiving holiday, and symbolic ones at that. The retail sector heads into the shopping season with a set of strong gains.
( JCG) gained 14.6% on news the company beat earnings estimates.
shares jumped 14.2% on news the company inked a deal with Exeter Brands Group, a division of
, to design athletic shoes. And,
BJ's Wholesale Club's
shares gained 9.89% on news the company's CEO Mike Wedge plans to step down.
On the flip side, shares of
were under pressure Wednesday, closing down 4.7% on news that shareholder Kirk Kerkorian, head of Tracinda Corp., recently lowered his stake in GM to 7.4% from 9.9%.
GM's guardian angel may be stepping aside, but there is redemption in this pre-Thanksgiving tale even without Kerkorian or George Bailey getting involved. The dollar stepped back from the ledge and the stock market spent the bulk of another week not correcting. Happy Thanksgiving, Mr. Potter.
In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click
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