Dollar Gains Despite Lower Consumer Confidence
Data Points To Inflation In UK Economy
Traders Concentrate On Next Weeks Data For Banks Next Move
US Dollar
The dollar gained on the day as overall profit taking from the weeks move ensued on the last day before the summer weekend. With the scheduled data thin, traders disregarded the poor University of Michigan report reading in taking the dollar higher against most of the majors at the close. For the month of August, the University of Michigan reported consumer sentiment that dipped to the lowest level since the aftermath of Hurricane Katrina. Although the longer term outlook remained positively buoyed, the overall sentiment of consumers dipped in the preliminary reading. Sliding to a 78.7 reading, the current gauge was lower than the 84.7 seen in July as inflationary fears and economic conditions dragged on consumer optimism. The surveys current conditions component slid to 100.8, three and half points lower as the consumer expectations gauge dipped to 64.5 from 72.5. With consumer spending accounting for two thirds of US economic activity, the report may have some considerable weight at the next Federal Reserve policy meeting. Citing rising inflationary pressures, central bankers finally decided early this month to halt on the consecutive string of rate increases that have taken place over the past two years. The halt may have indeed been needed as preceding hikes seem to be working their way through the economy, but at what price. Now with interest rates relatively high, the level of tightening may have been overdone as consumers are now required to pay more for borrowed cash and deal with a possible slowdown. As a result, market sentiment is surely to increase on the notion of another no change decision till the year end when central bankers reassess the economic picture. Looking ahead, little data is left to give the dollar some considerable reprieve. Next up, durable goods orders which are expected to decline in the monthly comparison.
Euro
Producer prices rose in the Euro zone, offering Euro speculation the notion of further interest rate hikes by the European Central Bank in the near term. Comparative to preceding and lackluster consumer price figures, producer prices rose 6 percent on the annualized comparison, bolstered by a 0.5 percent monthly increase. Additionally positive for the region were non-farm payrolls that climbed in the French economy as the current account deficit was decreased by a whopping 59 percent. All three reports are supporting the notion of at least three more rate hikes by policy makers by year end as the market continues to justify protection against rising inflation in the region. Data has been accommodating to say the least with even Swiss economic figures lending a mounting offense in line with the idea. Adjusted retail sales for the month of June, released today, jumped a whopping 4.8 percent against a mild decline seen in the prior month. Either way, rates are imminently going to be rising as European officials remain steadfast in their hawkish pursuit of inflationary curbing. Next weeks data should act as fuel for the fire, given results are in-line with consensus estimates. Expected for next week will be sentiment surveys for the public and private sectors. Should both fail to meet the estimates, traders may only pair back the likelihood to two more rate hikes.
British Pound
Pound data was more suggestive of inflation on the day as money supply figures were released in conjunction with public sector credit figures. For the month of July, preliminary figures released by the Statistics Office pointed to a faster than expected rise in the money supply. Here, the more money chasing fewer goods is likely to boost the price of the good at the consumer level. For the month, supply growth remained above 1 percent , rising 1 percent after a preceding climb of 1.5 percent in the prior month. The recent survey purports the continued existence of inflation, bolstering speculation of further rate hikes, even as some considered the Bank of Englands rhetoric slightly more dovish than usual. However, trumping the idea continues to be the notion of rising unemployment and weaker retail consumption. As a result, next weeks gross domestic product figure will serve as a key report in confirming continued growth as central bankers focus on justifiable inflation. The report, if positive is likely to keep the pound higher against the US dollar, at least for now.
Japanese Yen
Bolstering the notion of growth in the worlds second largest economy, sales in both Nationwide Department and Tokyo Department sales surveys pared back negative figures to rise in the month of July. For the period, the reports jumped to negative 1.5 and 1.6 percent respectively against 2 percent decline in the month of June. The recent positive bounces in the reports are being coupled with rising consumer spending reports and price increases in supporting another rate hike move by the Bank of Japan. Subsequently, the rise fueled mild yen demand on the day, even as traders continued to keep the higher returning greenback on the bid side. Next weeks data is looking increasingly optimistic and may lead to further bullish speculation for the yen as trade balance data and consumer price indexes are set for release. Both are expected to show positive results, a higher surplus for the trade balance and a continuing uptrend for consumer prices. Should actuals meet the levels predetermined by the consensus, market expectations for a short term central bank move are surely to rise once again.
