DOLLAR REBOUND: Lucky bounce or Treasury investment?

The Dollar strengthened rather a lot over a short period yesterday. Was this the US Treasury appeasing Beijing?

The business and financial news services are having to work harder and harder at the moment to explain what’s going on. They’re serving markets obsessed with the short view, so one can hardly blame them; but on the other hand, there remain machinations below the surface that are just too neat and convenient….or remarkably coincidental, you can never be sure.

For example, on Tuesday this week the Beijing Establishment allowed two of its alumni to mouth off about the lack of long-term safety that US securities represent. The gist of the outburst was, “Devalue away roundeyes, but there better be some left when we come to count what you owe us”.

Yesterday, the Dollar rebounded – fancy that. Reuters were first out of the blocks (great site for informed comment, by the way) its explanation being that there’d been ‘encouraging US employment and service sector data’.

Had there? The ADP report certainly exceeded forecasts, but nobody I spoke to seemed that ecstatic about it. Wall St Stocks advanced, but then there were some good corporate results around. Traders ‘remain nervous’ was the general feedback….especially with non-farm payroll data coming up. This from the FT:

“A wave of weak economic data, including disappointing jobs figures, and expectations of further monetary easing by the US Federal Reserve to head off the risk of a double-dip recession have been the main drivers of the dollar’s fall….”

Closer to home, a leading wealth manager commented:

“I wouldn’t get too enthused; it’s one data point that’s positive,” said Christian Hivid, chief market strategist at Genworth Financial Asset Management. “At the end of the day, the headwinds are still out there. It’s a pretty weak employment landscape, and there’s this concept of austerity out there, and potentially slower growth going forward.”

Hmmm. Well, here’s two things to think about. First, the volumes traded in the Buck were actually small; we weren’t looking at a rush to buy here. The point is, ‘directionalizing’ is always easier in low-level activity. And second, the jump took place very quickly – within twenty minutes just after 2 pm New York time….at a period of very, very low volume.

I’d say there’s a whiff of Treasury support in there. Which, if I was in Geithner’s shoes, is exactly what I’d do too – and so would Mervyn King. The naysayers will always argue, of course, that the records show ‘no evidence of intervention’. Which is sort of what they were saying about gold three years ago.

Talking of gold, I keep getting requests for more news on the manipulation/capping of that price, but I don’t see any at the moment. It’s nicely poised just below $1200, and dithers up and down a bit chiefly because of some profit-taking by the nervous and selling by the optimistic. Being a realist, I’m staying with it. The fact that it’s getting harder and harder to find a good tracker deal tells me most of what I need to know.