US Dollar Gains as Risk Appetite Fades, DJIA Closes Back Below 10,000

The US dollar was one of the strongest major currencies, falling only against the British pound, as risk aversion faded and the Dow Jones Industrial Average (DJIA) fell back below 10,000. Looking to the news on hand, US industrial production rose for the third consecutive month in September, this time at a rate of 0.7 percent, while capacity utilization hit a seven-month high of 70.5 percent. Meanwhile, foreign demand for long-term US equities, notes and bonds totaled $28.6 billion in August as, on net, investors bought Treasuries for a third straight month, indicating that international buyers are not shunning US assets. In less positive news, preliminary readings showed that the University of Michigan's consumer confidence index fell to 69.4 in October from a 20-month high of 73.5. The decline was led by a deterioration in the economic outlook, as sentiment on current economic conditions went relatively unchanged. A further breakdown also shows that 1-year inflation expectations shifted from 2.2 percent in September up to 2.8 percent, indicating that consumers anticipate that price pressures are building.

US dollar event risk will start to pick up again next  Tuesday, as US housing starts and building permits are projected to have risen for the second straight month in September to 10-month highs, with starts anticipated to hit 610,000 from 598,000 while permits may rise to 590,000 from 580,000. While the unemployment rate is still in the process of rising, the federal government’s tax credit for first-time home buyers of up to $8,000 is likely to remain supportive of demand through the end of the year. However, if the program expires as planned on December 1, the growth we’ve started to see in the housing sector could start to wane.