DEM Producer Prices Drop 0.3%
CHF Trade Balance Hits Record High
GBP Retail Sales Unexpectedly Fall
US Leading Indicator, Philly Fed on Tap
After spending much of the early European session rallying to 1.8730, Pound instantly reversed and plummeted almost 70 points down to 1.8633. The culprit? Dismal UK retail sales. The report surprised to the downside at -0.4% against estimates of a 0.4% gain, with the decline being led by a 2.3% fall in household goods. The report is very negative for the UK consumer spending outlook, especially as it had been anticipated to jump amidst lower energy prices and high, though weakening, employment rates. Losses for GBP/USD were also exacerbated by somewhat dovish comments from Bank of England Deputy Governor Rachel Lomax, who said that house price strength does not signal that the UK is on the edge of an economic boom, and that the economy is not roaring away like in the first part of 2004. Additionally, Ms. Lomax noted, Today's high inflation doesn't necessarily mean tomorrow's high inflation, and reiterated that BOE members are not excessively troubled by short-term rises in inflation, and that it is the outlook for inflation that counts. Todays UK data, along with Ms. Lomaxs commentary and low CPI figures released earlier this week could signal that the Bank of England will take a wait-and-see approach in November by leaving rates at 4.75%.
The perpetually pained Swissie strengthened today, with USD/CHF falling nearly 50 points to 1.2645 and EUR/CHF breaking below the 1.5900 level on solid economic data. The Swiss trade balance skyrocketed to a record high of 1.80B, well above expectations of a 1.45B print, as the weaker franc made exports cheaper. Meanwhile, consumer spending surged with retail sales jumping 4.5%, boding well for Q3 GDP figures. Overall, todays reports should keep the Swiss National Bank on track to hike rates 25bps in December to 2.00%.
In US data, the leading indicator for September is anticipated to rise as a result of ever-improving consumer confidence and the 2.4% gain in the S&P during the month. Meanwhile, the Philly Fed report is estimated to rebound to +7.0 after falling to a tepid -0.4 the month prior. While the Philly Fed report measures only a small fraction of US economic activity, it will be interesting to see nevertheless if todays data confirms upbeat claims by dollar bulls that US economic activity continues to maintain a healthy pace of growth as evidenced by solid housing starts released yesterday. If, however, todays figures falls further, they may serve as a confirmation of deceleration in the US economy first signaled by the Philly Fed numbers last month.
