[B]Talking Points
• Japanese Yen: BoJ Leaves Rates On Hold, As Outlooks Dims
• Euro: Zew Outlook improves, But current conditions falters
• British Pound: Housing Prices Continue to Fall
• US Dollar: Housing Starts And PPI on tap[/B]
Euro Falls As German ZEW Shows Current Conditions Worsening
The Euro was trading lower after an initial bullish spike following the German Zew Survey. The indicator showed an improvement in German investor’s outlook to -55.5 from -62.0. However, the current situation component sharply fell to -9.2 from 10, indicating that current growth in Europe’s largest economy may be contracting faster than initially estimated. Meanwhile, German producer prices rose to 8.9% from 7.5%, which was the fastest pace in 27 years, underlining inflation concerns.
German investors grew more confident on the back of oil prices falling 20%. Yet, the increase in producer prices demonstrates oil’s recent record setting pace continues to filter through the economy. The better than expected improvement in confidence shows that investors don’t foresee the economic downturn in Europe to be prolonged which could give the ECB more time to asses the downside risk of the economy before taken further monetary policy action. As long as price pressures continue the central bank will be reluctant to help their struggling economy as they ardently adhere to their price stability mandate.
Housing and inflation data will provide event risk for the U.S. dollar today. Inflation continues to remain a concern for the MPC, which was reinforced by comments from Dallas Fed President Richard Fisher that Chinese growth will continue to put upward price pressure on oil. Indeed, today’s producer price report is expected to show costs rising to 9.3% from 9.2% the month prior. Yet, a decline in new construction, especially single family homes could weigh on the dollar as the never ending housing slump will keep the Fed on hold. U.S. housing starts are expected to fall to a 17 year low of 960,000 from 1.066 million the month prior. Yesterday’s renewed speculation that the government will have to bailout the mortgage GSE’s has sparked recession concerns and today’s data will only add to those fears.
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