Weak Data Weighs on Dollar Despite Better Outlook for Payrolls (page 1 of 2)

US Dollar - The market is beginning to get tired of the US dollar's extended sell-off as the Euro ends the day virtually unchanged along with the Japanese Yen and British pound. The real action today was in the commodity currencies (see that section for more details).

For the most part, US economic data continues to disappoint, with the national ISM manufacturing index falling from 52.9 to 51.2, the lowest since June 2003. The bigger surprise was the drop in the prices paid index to 47, which is the lowest since Feb 2002. The manufacturing sector in the US is languishing and the numbers are showing it. This follows earlier weakness in both the Philly Fed and Chicago PMI reports and is yet another piece of evidence that the US economy is slowing and inflation is abating.

Pending home sales and construction spending also printed lower than expected highlighting the weakness of the US housing market. Only a very strong non-farm payrolls report on Friday will help save the dollar, albeit most likely temporarily. Today's ADP release suggests that a triple digit non-farm payrolls print on Friday may be possible.

According to the payroll provider, 128k jobs were added in the month of October, 20k more than the market's initial forecast. The Hudson index also rose to 101.4 from 100.5. The late afternoon dollar rally may be attributed to just that. Aside from factory orders tomorrow, the US calendar is relatively light, which means that everyone will be looking ahead to Friday's report.

Euro and Swiss Franc - With no economic data released today as most of Europe was closed for All Saints Day holiday, trading in the Euro has been extraordinarily quiet. Tomorrow is the ECB monetary policy meeting along with the release of manufacturing PMI reports from all around the Eurozone as well as Germany unemployment. The European Central Bank is not expected to lift interest rates until December, but there remains a tiny chance that they could.

If they do surprise with an earlier than expected hike, we could see a new round of Euro strength. The main focus tomorrow will be the comments from ECB President Trichet. Although we all know with great certainty that the central bank is still concerned about inflation and is looking to raise interest rates, economic data is beginning to suggest that growth in the region's economy is starting to be impacted by the slower growth in the US. Should there be any signs of a tamer outlook by the central banker, expect Euro bulls to react violently.

Meanwhile even though the Swiss economy remains fairly strong, Swiss economic data is also beginning to surprise to the downside. Earlier this week, the KoF leading indicator fell to 2.0 from 2.19 and today, the manufacturing PMI survey dropped from 64.4 to 62.3. Tomorrow we are expecting Swiss consumer prices for the month of October. Even though the monthly rate of growth is expected to rise, the annualized pace is expected to slow from 0.8 percent to 0.7 percent, giving the central bank little capability to raise interest rates.

British Pound - Even though manufacturing sector PMI came in slightly below expectations in the month of October, it did little to stop the British pound from rallying for the sixth consecutive day in a row. Late yesterday afternoon, the Governor of the Bank of England warned that the central bank is watching the level of money supply very closely.

If you recall, two days ago, the annualized pace of M4 money supply growth hit a 16 year high.