On Monday, August 3, the U.S. dollar packed about as much heat as the Abominable Snowman. Ipso facto: the greenback plunged to a new low for 2009 against its European counterpart, the euro.
As for what caused the sharp and sudden drop in the dollar's value -- the mainstream experts pointed their collective finger at one piece of data: A "stronger-than-expected" August 3 Institute of Supply Management (ISM) manufacturing survey. Here, the news item below comes in on the heels of the ISM reading:
The dollar was used as a "safe haven from risky assets during the financial crisis. Now that there is growing confidence the recession is over, demand for the buck is ebbing." (DJ Newswire)
One problem: the most recent selloff in the dollar got started BEFORE the ISM survey was released on the world wide webosphere. To be exact, "demand for the buck" began to ebb on July 30.
As it were, the usual suspects also happen to be inconsistent in the beliefs they expect others to uphold. On July 30, a Labor Department report revealed a drop in the number of US jobless benefits. And -- in the hours leading up to and minutes following said report, the US dollar turned UP. A news item from the day made this observation:
"The continuing claims component was getting better, so that bodes well for the economy going forward. That has provided support for the US dollar." (Associated Press)
Why wouldn't the same report "support the US dollar" today, four days later? Go figure.
Here are the facts: On July 30, the US dollar began turning down from its highest level in four weeks. That afternoon, EWI's Currency Specialty Service set the stage for a resumption of the euro advance via the following price chart and analysis: (Some labels have been removed for this publication.)
"The subsequent setback certainly looks corrective at this point. So, I'm looking for the euro to continue higher (in line with the weak dollar outlook.)"
Flash ahead to today, and the August 3 Currency Specialty Service intraday update offered this snapshot of the euro rally/dollar decline since then.