Talking Points
• Japanese Yen: Bounces Off Support At 107.35
• Australian Dollar: Inflation Eases As Manufacturing Contracts
• Euro: Unfazed By PMI Data, Continues To Consolidate
• British Pound: Manufacturing Falls To Lowest In A Decade
• US Dollar: NFP’s on tap
The Pound fell over 100 points during the assian session weighed by the lingering effects of the decline in Nationwide house prices, an expected dour manufacturing report due for release and touted short GBPCHF interest from a major Swiss Bank. However, the Sterling found support at 1.9740 despite the manufacturing indicator printing at a decade low of 44.3 in July. It was the third straight month the sector contracted as factories battle rising raw material costs and slowing global and domestic demand.
After closer inspection of the breakdown, we see that new orders fell to 40.5 from 43.7 signaling that further weakness in the sector is forthcoming. The employment component also slipped to 43.3 from 46.2 which will further weigh on a U.K. labor market that saw jobless claims rise by 15,500 in June. The BoE will be hard pressed to raise rates at their upcoming policy meeting giving the contracting economy, despite the efforts of hawk Tim Besley to convince his fellow committee members that price stability should be their focus. Yet, prices charged by factories rose to 63.1 from 62.6 - the highest since the series started in 1999, adding upward pressure to inflation which is threatening to rise above 4%.
The Euro spent the overnight session on hold ahead of the upcoming U.S. job report, despite German retail sales falling twice as much as expected. Consumer consumption continues to weaken in Europe’s largest economy falling 1.4% in June and 3.9% year-over-year. It was the third time in four month that shoppers reduced their purchases as they battle rising inflation and a weakening labor market-which lost 20,000 jobs in July. The ECB recent rate hike has accelerated the contraction in the European economy, which may forced the MPC to abandon their tightening bias and consider a rate cut before the end of the year.
Yesterday’s GDP numbers showed that the U.S. economy did indeed contract in the fourth quarter of 2007 after the original 0.6% reading was revised lower to a -0.2%. The realization that the economy had reached recessionary levels and the weaker than expected 1.9% print for the 2Q of 2008 saw the dollar freefall. However, the greenback has fought back to erase those losses and more against the Euro and Pound. The upcoming Non-farm payroll report will test the dollar’s resiliency as the economy is expected to have lost another 75,000 jobs, which would be the seventh straight month of declines. A drop of 100,000 or more could send the dollar falling sharply as the long-term effects of the credit crisis may only be beginning. However, giving the recent bullish momentum and optimism that the end of the subprime woes is in sight, an inline print or lower could push the dollar higher.
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