JPY CPI soft puts hike on hold
EUR M3 grows above expectations
CHF KOF misses badly
US GDP on tap
The dollar recouped some of its losses in overnight Asian and European trade as the EUR/USD found resistance at its long term equilibrium level of 1.2700 while the Japanese and the Swiss data pressured the low yielders for most of the night. Japanese CPI printed slightly lower at 0.2% versus 0.3% expected disappointing yen bulls who had hoped that the data would spur the BoJ to raise rates another 25bp before year end. With Japanese price levels relatively benign, market consensus is that further rate hikes will not occur until next year. Still, given the latest Japanese economic performance the case of higher short term rates is simply a matter of action delayed rather than action denied. Indeed even Mr. FX vice finance minister for international affairs Hiroshi Watanabe noted that he did not expect further yen weakness given the economy's healthy fundamentals. Mr. Watanabes comments helped drive EUR/JPY from recent highs of 150.81 as the pair continued its inexorable climb on carry trade flows. Both the European and the Japanese authorities are becoming increasing concerned about the rise of the EUR/JPY cross above the 150 level but short of intervention or perhaps very arduous jawboning it appears neither party will be able to contain the up move in the cross given the ever widening interest rate spread between the two currencies
In Switzerland today, the all important KOF index of leading economic indicators also disappointed printing at 2.00 versus 2.24 expected while the reading from the month prior was revised downward to 2.19 from 2.32. The export dependent nation saw a slight slowdown in demand from US. Nevertheless, Switzerland is perhaps the healthiest economy amongst the majors with both budget and trade surpluses as well as ultra low 3.2% unemployment rate which should translate to more consumption driven growth in the near future. For the time being however, the Swissie remains vulnerable to further carry trade flows against both the dollar and the euro as interest rate expectations beyond the anticipated 25bp hike in December remain decidedly modest.
