Jump in US consumer confidence does little to help dollar (page 1 of 2)

US Dollar

The dollar has been in a fairly tight range since the start of the holiday lull, but some action was seen at the end of the Tokyo trading session with the greenback rapidly losing value before settling into another range for the remainder of the morning.

The December report of the Conference Board Consumer Confidence Index passed without a peep from the market. The index moved up to a higher-than-expected level of 103.6 from November's downwardly revised 98.3. The increase came mostly from a surge in consumers' assessments of the present situation while the expectations index garnered a small rise. After two strong monthly increases, the headline index now sits at its highest level since Hurricane Katrina struck in late August. Despite the optimistic overall outlook, perceptions of the labor market situation have not improved while even a smaller percentage of respondents reported expectations of income increases.

Meanwhile, MBA mortgage applications fell to their lowest level in three years, showing a confirmation of the housing market decline. Though the past few months of data on building permits have continued to remain buoyant, it is now clear that demand isn't growing anymore. Although these reports amounted to a fairly positive morning, the rally seen in the dollar early in the afternoon was mostly due to the triggering of accumulated orders at a few key levels in dollar pairs.

This type of market behavior is likely to continue until the end of the week as trading remains thin. Even though there are some US data releases tomorrow morning, barring any huge surprises, the numbers are not likely to create large moves.

Euro

Trading in the EUR/USD remained sparse today with the currency in ranges for the most part aside from two relatively large moves. The initial jump in the euro took place following this morning's release of today's only piece of economic news out of the region.

The results of GfK's latest German consumer climate survey revealed that the index for December was revised up to 3.4 from 3.1 while an improvement to 3.8 was forecast for January 2006. This figure is the index's highest level in six months. While the report revealed that expectations of income are continuing to deteriorate, consumers are still willing to increase their spending.

The index measuring consumers' propensity to make major purchases achieved its first positive reading since 2001, prior to the inception of the euro. With this news, there's increased hope for 2006 to see increases in personal consumption, which will drive GDP growth in the EU-12's largest economy. Unfortunately, with an increase in the Value-Added Tax still scheduled to take place in 2007, this period of heightened domestic demand could be short-lived.

However, the short-term still looks good especially as German and UK holiday sales beat expectations according to some reports from private institutions. Retailers reportedly got a boost from the fact that Christmas fell on a Sunday this year, adding an additional weekend shopping day to the season.

Sluggish consumer spending has been the main factor holding back the growth rates of many European economies in the past few months and if improvement in this area continues, the ECB may soon find it acceptable to raise rates again.

British Pound

Like many other currencies, the British pound is suffering from an anemic economic calendar this week. Without any official data, the only economic news on the wires today was Hometrack's report on house prices for December.