LONDON (Thomson Financial) - The dollar came in for a pounding after a set of dismal US economic numbers suggested that the world's biggest economy may not be able to avert recession after all.
The Federal Reserve Bank of Philadelphia reported today that its headline Philly Fed index fell to -24.0 in February from -20.9 in January. The latest reading was twice as low as economists had expected, and is now at its lowest levels since the 2001 recession. The index measures manufacturing activity in the area.
Many analysts consider it a signal of impending or even current contraction in the US economy.
"The further deterioration in the US Philly Fed activity index in February confirms that the collapse in the index last month was not statistical noise," said Paul Ashworth at at Capital Economics.
"As far as this indicator is concerned, a recession, and a severe one at that, is already underway," he added.
It was not surprising then that the dollar fell sharply after the news, with the euro coming close to the 1.48 usd level, its highest since Feb 5.
The bad news for the dollar did not stop there. Also out today, the index of leading US indicators fell by 0.1 pct month-on-month in January. The drop was the fourth in a row and was driven by losses in the equity market and continued signs of weakness in housing sector.
While not alarming at first glance, the six-month change in the index showed a steep drop and firmly pointed to a recession, added Ashworth at Capital Economics.
"It is a fairly reliable indicator as well, successfully predicting every recession since 1960 and only throwing up one false-positive back in 1967," he said.
Elsewhere, the pound got a boost from strong UK retail sales data, which suggested UK high street activity is much more buoyant than previously thought.
The Office for National Statistics revealed that retail sales in January were up 0.8 pct higher on a seasonally-adjusted basis from February, when retail sales fell by 0.2 pct.
January's performance beat expectations for a 0.2 pct monthly rise, and helped the annual rate double in January to 5.6 pct, again beating analysts' forecasts of a 4.8 pct increase.
"The pound continues to benefit from January's forecast-busting UK retail sales figures," said Robert Howard at Thomson IFR Markets.
The news will allay fears of an imminent slowdown in the UK economy, and keep in place expectations that though there appears to be room for the Bank of England's Monetary Policy Committee to cut interest rates further, it will do so gradually rather than aggressively.
"Today's release perhaps reinforces why the BoE envisages a more gradual easing in monetary policy than markets," said David Page, UK economist at Investec.
After the day's dismal US data, the pound was able to rise back above 1.96 usd.
London 1653 GMT London 1303 GMT
US dollar
yen 107.60 down from 108.15
sfr 1.0920 down from 1.1004
Euro
usd 1.4812 up from 1.4733
stg 0.7550 up from 0.7526
sfr 1.6180 down from 1.6215
yen 159.42 up from 159.35
Sterling
usd 1.9617 up from 1.9579
yen 211.19 down from 211.69
sfr 2.1420 down from 2.1537
Australian dollar
usd 0.9211 up from 0.9194
stg 0.4691 down from 0.4695
yen 99.11 down from 99.42
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