The rebound in the foreign exchange market on Wednesday was short lived as another wave of risk aversion hits currencies. US economic data was very weak with jobless claims rising to the highest level since 1982 and housing starts dropping 15.5 percent to the worst level ever. Starting with the labor market, continuing claims, which measure the number of people remaining on unemployment rolls rose to 4.607 million. So far we have seen 12 consecutive months of negative non-farm payrolls and as long as claims remain above 500k, we will continue to see net job losses in the US economy. If a bellwether like Microsoft can announce that they are planning to cut 5000 workers, more companies will follow suit especially smaller ones who may not have rainy day funds to weather the storm. In past recessions job cuts have lasted for a minimum of 15 months which means that non-farm payrolls may not turn positive until the second half of the year.
The housing market is crippled by the falling consumer wealth and tight credit markets. Even potential homeowners who actually have the money to by are having a very difficult time obtaining financing. Good credit ratings don’t really matter any more. with so much inventory still on the market, housing starts and building permits should continue to drop.
The labor and housing market data highlight the seismic challenges that the US economy faces but the dollar continues to benefit from safe haven flows. In times of economic uncertainty, investors flock into the lowest yielding currencies.