Reply #19: dollar watch

[UpInArms]

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Last trade 73.679 Change +0.153 (+0.21%)

Pound Unexpectedly Drops On BoE Forecasts Of 4 Percent Inflation

http://www.dailyfx.com/story/bio1/Pound_Unexpectedly_Drops_On_BoE_1213746325391.html

Dollar Finds Little Help From Heavy Concentration of Data

Tuesday’s US economic docket offered the dollar its most concentrated event risk for the week; yet the otherwise volatile data would deliver few surprises for a market that is already veraciously discounting future Fed rate decisions. The morning opened with a range of data that would cover both growth and inflation trends. With futures traders considering a quarter point rate hike in September a near certainty, there an obvious interesting in the produce price index for May. Upstream inflation pressures accelerated more quickly than expected to a 7.2 percent annualized pace that fell just short of the multi-decade high set just a few months back. Even when the 4.9 percent jump in energy costs and 0.8 percent increase in food prices were excluded, the core figure would notably match its own 16-year high. However, considering the market’s focus on the cost at the pump in the grocery line and the fact that the front-line CPI numbers were released last Friday, this data added little to the mix. For growth, the session’s data was not encouraging for the greenback. The housing market – the US economy’s anchor – reported an ongoing drop in construction. Housing starts slipped 3.3 percent to a 17-year low and permits for future projects fell 1.3 percent as demand sufferers from evaporating home values, ballooning inventories, rising mortgage rates and plunging consumer confidence. The business community was similarly under pressure with industrial production contracting 0.2 percent and capacity utilization edging down to a new three-and-a-half year low. To top it off, trade activity was lending little help to expansion despite the dollar’s recent record lows. The current account deficit for the first quarter ballooned more than expected to a $172.5 billion shortfall owing largely to rising fuel costs burdening the physical balance and reduced foreign investment curbing net income.

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Euro Cant Hold 1.5500 As Currencies Look For Direction

http://www.dailyfx.com/story/bio2/Euro_Cant_Hold_1_5500_As_1213784267927.html

A very quiet meandering night in the currency markets with EURUSD continuing to consolidate around the 1.5500 level in a now very familiar fashion. With economic calendar for the day virtually empty, order flow and a smattering of central bank commentary were the primary factors driving trade.

ECB Member Jorgen Stark noted that the 3.7% inflation level was “may be unacceptably high” stoking hopes of euro bulls that a rate hike may be coming in July. However, as we noted yesterday the inflationary numbers from all the G-11 nations are elevated strictly because of oil prices with core readings considerably more muted. If oil prices recede from their Olympian highs much of the impetus for the rate hikes may disappear.

In the meantime the ECB will meet a tremendous amount of institutional opposition from the EZ business sector which is already feeling the negative effects of tighter credit. Today’s weak construction PMI numbers which showed a decline of –2.4% on a year over year basis is just the latest data point to suggest that growth in the 15 member union is decelerating rapidly.

In UK the release of the BoE minutes provided little surprise with members voting 8-1 to keep rates steady as the lone dove David Blanchflower opted for a 25bp cut. Cable found temporary strength in the following passage “For some members, news had been sufficient to consider whether an immediate rise in Bank Rate was warranted. If there were a serious threat to medium-term inflation expectations then a pre-emptive rise in rates would be appropriate. Delay would only increase the eventual costs of bringing inflation back to target, “ but the rally soon fizzled as MPC members noted that there were also arguments against the hike. In short, the market concluded that the BoE will remain stationary for the time being with danger to the downside still the more likely outcome if economic conditions in UK deteriorated further.

In North America today, the data calendar only contains MBA mortgage approvals, leaving currencies at the mercy of macro factors such as stocks and oil and unless there is tremendous volatility in those markets, the listless trading of Asia and Europe should continue into the US open.

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