JPY Jobless Rate up to 4.2%
DEM Retail Sales plunge -1.7%
UK GfK surprises to the upside, CBI weak
US Chicago PMI, Consumer Confidence on tap
Today the crosses took control as traders weighed the prospects for growth in the Euro-zone, UK, and Japan in light of the material Q3 slowdown in the US. A drop in EUR/GBP shook up the respective currencies against the greenback in late Asian trading, and a subsequent jump in EUR/JPY from 149.32 to 149.77 during the early European session sent yen plummeting.
UDS/JPY tracked its way up towards 118.00 on a slew of weak employment results out of Japan, and while the Bank of Japans decision to keep rates at 0.25% was by no means a surprise to the markets, the central banks Semi-annual Outlook on the economy effectively erased the possibility of a BOJ rate hike in the near term. The Banks outlook showed growth downgrades from 2.5% in 2006 to 2.0% in 2007, along with paltry 0.5% CPI estimates for next year. While the BOJ becomes more and more reluctant to set up any sort of timetable for monetary policy tightening, the outlook report makes it clear that the markets may be waiting for quite a while.
Meanwhile, EUR/USD dropped back below the 1.2700 level after retail sales in Germany posted dismally low at -1.7% in the month of September, dragging the annual rate down to -1.2%. Spending had been anticipated to pick up 0.6% during the month as gasoline prices fell, leaving more disposable income for consumers. Additionally, the 2007 VAT hike to 19% from 16% was expected to boost sales of big ticket items for the remainder of 2006 as shoppers aimed to avoid the cost associated with the additional tax. However, it appears that these factors have only helped sentiment, as consumer confidence held at a four year high of -8 on increased optimism on the economy and prices. If consumption isnt going to improve even amidst times of high consumer confidence, the question remains: what will it take? Furthermore, how is the Euro-zone going to continue to expand if domestic demand dwindles? These are questions that may lead the European Central Bank to hold off on any rate hikes until December.
Today, the US is expected to see further divergence in consumer and business outlooks in October. Consumer confidence is expected to jump to 107.8, in line with the most recent U of M survey, while Chicago PMI is anticipated to slip, similar to drops in the Philly and Richmond Fed reports. However, with ISM Manufacturing set to be released tomorrow and NFPs looming on Friday, USD price action could be limited today.
