The Euro came under heaving selling pressure as the US dollar strengthen across the majors on the back of falling oil prices. On the economic front, Euro-Zone producer prices peaked to a new record high of 9.0%, which was the biggest increase since record keeping began in 1990.
Talking Points
· Japanese Yen: US Dollar Strength Carries Yen to 108.80
· Pound: Dips Below 1.7850
· Euro: Falls to 1.4500 While PPI Hits 18 Year High
· US Dollar: ISM Manufacturing and ABC Consumer Confidence On Tap
German Retail Sales Disappoints, ManufacturingFalls to Record Low
The Euro came under heaving selling pressure as the US dollar strengthen across the majors on the back of falling oil prices. Oil futures slipped to a five month low - breaking below $107 a barrel - and helped to spur bullish sentiment for the greenback. On the economic front, Euro-Zone producer prices peaked to a new record high, but did little to help the Euro recover after falling for four consecutive trading sessions.
The Euro-Zone producer price index rose to 9.0% from 8.0%, which was the biggest increase since record keeping began in 1990. Despite hitting a new high, the release failed to meet expectations of a rise to 9.1%. The increase was driven primarily by record high commodity prices as crude oil peaked to $147.27 a barrel in July. Commodity prices have fallen from their record high in the past few weeks, and should help to ease price inflation throughout the 15 European nations. Meanwhile, consumer price inflation has leveled off in recent months as the index held steady at 4.0%, missing expectations of a rise to 4.1%. Conversely, the core CPI fell for the first time in three months as the index inched lower to 1.7% from 1.8% in July. Cooling inflation paired with stagnant growth may lead the ECB to soften their hawkish outlook, which may spark bearish sentiment for the Euro in the following months. The central bank is widely expected to hold rates steady at 4.25% for the rest of the year, but may move to cut the benchmark interest rate ahead of schedule as growth prospects steadily deteriorate.
The ISM Manufacturing index tends to spur increased volatility in the forex market, and will be the main event risk to follow during the US session. Manufacturing activity is expected to hold at the borderline reading of 50.0, but may cross the wires weaker than expected as foreign and domestic demands lose steam. US consumers continue to grapple with higher living costs amid fading labor demands which may limit economic activity well through the second half of 2008. As the US and Canada comeback online from the holiday weekend, a fall in manufacturing could spark bearish sentiment for the US dollar.
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