The greenback posted its largest weekly gain on a trade-weighted basis in a month despite relinquishing its grip in Friday trading. Nevertheless, lingering fears over credit conditions and the credibility of banks’ balance sheets continue to plague the currency. Accordingly, the currency market will continue to be closely correlated with equity market moves – particularly the trajectory of the carry trade pairs, amid times of heightened volatility.
Economic data released earlier in the session derailed the dollar’s rebound against the majors, pushing it toward session lows versus the euro and sterling. Industrial production for October fell by 0.5%, missing expectations for a 0.1% increase and reversing the previous month’s 0.2% increase. The decline in industrial production also marked its largest drop in over two-years, reinforcing fears that the housing slowdown continues to weigh on manufacturing. Capacity utilization was largely inline with expectations at 82.0%, down marginally from the previous month at 82.1%. The September TICs report revealed a net outflow of $14.7 billion versus a downward revised outflow of $150.7 bil
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