What Happened to King Dollar?

This wasn't how 2013 was supposed to go for the US dollar. It lagged Tuesday on a soft jobs report; and a year where the USA was supposed to turn the corner has morphed into unending sluggish growth and quantitative easing. Later, the high flying Aussie faces the CPI report.

Non-farm payrolls rose 148K compared to 180K expected and that headline number was all that mattered to the market. The unemployment rate fell to 7.2% from 7.3% and August jobs were revised higher but as soon as the numbers hit it was a one-way trip lower for USD.

EUR/USD broke the 2012 high of 1.3711 and nearly hit 1.38. Cable climbed as high as 1.6245 from 1.6130. Both pairs finished very close to the highs of the day.

USD/JPY bounced from the initial losses and entirely retraced losses but couldn't hang on to the upward momentum and slid back to 98.00.

Really, there was nothing frightening or particularly unexpected in the jobs report but the market has turned bitterly against the US dollar and it's not hard to see why. The Fed passed on its opportunity to taper, another dove is set to take over at the Fed, the government is incapable of leadership and growth drivers are sagging.

At this time last year, the market could look to housing as a growth engine but a +10% rise in prices did little for broader growth and flat wages will temper further gains. Manufacturing is solid but steady. Hopes about large-scale corporate investment have turned to fantasy.

A taper that was a 'close call' is now off the table and the market thinks it will stay that way for six months. The reason to buy dollars is that sentiment is overdone but until the data turns around decisively buying-and-holding the dollar won't be a strategy.

The dollar-down-under is another story. There are signs of a renewed pickup in investment and China continues to hum along. AUD/USD is certainly overbought at this point but there is still plenty to like. A surprise inflation climb would be a fresh reason to buy when the report is released at 0030 GMT.