The dollar continued falling after yesterday’s ambivalent jobless data was interpreted negatively. The data showed a lowering of initial claims but an increase in ongoing claims. This followed a much lower than expected Durable Goods Orders figure earlier in the week. The piece of data which investors have been most eagerly awaiting today, however, is US GDP which will be released at 12.30 GMT. A moderate 0.1% increase is expected MoM but a slight decline on the annual figure from 2.7% to 2.5%. However given the string of recent bearish data the general consensus seems to be growing more pessimistic as time goes on. At midday the dollar was trading at $1.3002 against the euro and $1.5577 against the pound.

   The most important metrics out today for the euro were euro-zone unemployment which stayed the same at 10% and CPI which rose and came in at the expected 1.7% after 1.4% last month. The euro rather surprisingly fell in response to the news, perhaps because the unchanged figures reflect stagnation rather than growing momentum. At midday GMT the euro was trading at $1.3002 against the dollar and £0.8347 against the pound.

   The pound continued rising yesterday but not very strongly. The positive effects of the GDP increase last week and the better than expected Retail Sales figures earlier in the week, which contributed to fuelling Sterling’s current rally, seem to have exhausted themselves and there has been no new information to maintain momentum. In fact the Consumer Confidence figures today showed a slightly worrying drop from -19 to -22, lower than the -20 expectations. Yesterday the UK released poor Consumer Credit and Mortgage Approvals data which also showed both these metrics fall. In addition, Sterling may be suffering slightly after the UK government was criticised by the business community for its immigration policies which propose a cap on immigrant numbers, with some companies even threatening to relocate. The government also came under further fire for implementing stringent new banker’s pay reforms limiting banker’s bonuses. At midday the pound was trading at $1.5577 against the dollar and ¥134.69 against the yen.

   The yen rose after a string of disappointing data led to fears of a double dip recession and sent investors to safe haven buying. The unemployment rate, for example, unexpectedly rose from 5.2% to 5.3% in June and Manufacturing PMI dropped from 53.9 to 52.8. Industrial Production and Housing Starts also fell. It was not all bad news, however, as CPI rose modestly showing deflation had temporarily withdrawn and household spending was also up by 0.5% YoY in June. Additional yen buying may also have been caused by traders buying yen before the deadline for the new retail brokerage leverage regulations are brought in after the 1st August. Given the retail market accounts for almost 50% of the FX turnover in Japan this may be quite an important factor. At midday the yen was trading at ¥86.48 against the dollar and ¥112.44 against the euro.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst