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Currency Currency
by ForexNewsNow Team on October 27th, 2010

US Durable Goods signal no inflation

US flagNEW YORK (Forex News Now) – Forex trading news saw the US Durable Goods release this morning in the US come out weaker than expected at -0.8%, much lower than the anticipated 0.4%.

The lack of orders placed with American manufacturers signals that the economy is slowing down again, while fears of a “double dip” might not be warranted, it’s a reminder of just how slow the US economy really is at the moment.

Ironically, the dollar can sometimes benefit from bad forex trading news, as it triggers “safety buying” by traders around the world. If the Americans cannot get it together, it is possible that the world’s largest economy won’t be buying the goods of other economies. It shows that cross border trading might slow, and in those times, safety is king.

With a lack of inflation, the long term outlook for the dollar is probably going to be weak, and especially so if another economy shows any hint of inflation. Inflation in another part of the world might trigger interest rate hikes, enticing traders to buy those higher yielding currencies on forex trading news releases that will back the inflation outlooks for the currency.

However, the world’s economies need to stabilize before the rate hikes can be a possibility, and that is why I pointed out this would possibly be a long-term bad sign for the dollar. In the meantime, traders are simply looking for safety, and that often means Treasury Bills, which of course are bought in US Dollars, driving the demand for the USD higher.

Any whiff of inflation in the US might actually have the reverse effect of what one expect, as the US buying more exports from other countries becomes a reality in a healthier economy, driving the demand for exporter currencies higher.

In the mean time, it’s about a return of capital, not a return of it. This is why even with bad economic numbers, the Dollar can rise.

By ForexNewsNow Team

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