A very quiet session in overnight trade tonight as euro spent most of the time pinned underneath the 1.3200 level receiving little help from the economic calendar. On the data front French CPI numbers surprised to the downside printing at 1.2% vs. 1.4% expected on a EU harmonized basis while EZ Industrial Production slipped -0.2% vs. 0.4% expected, although the results from the month prior were revised upward. Finally EZ employment grew 1.6% as forecast in Q4 of 2007.
Overall, the news had virtually no impact on trade as the pair simply consolidated yesterdays gains from the lackluster US retail Sales number… Given yesterdays decline in US equity markets and the rapidly spreading fears of a US credit-led recession it is a bit surprising that the euro did not rally further. However, the true beneficiary of flight to safety theme over the past 24 hours has been the Swiss franc which gained nearly 100 points against the greenback. As turbulence hit the global financial markets driven by fears of a burgeoning sub-prime loan crisis, it is the low yielders such as the Japanese yen and Swiss franc that attracted the biggest order flow in the currency market.
For more information on the effects of the sub-prime blowup on the US dollar please click here.
The story was much the same for the British pound which suffered even bigger declines on the back of further carry trade liquidation in the GBPJPY cross which fell another 250 points since the start of the week. The drop in cable took place despite the fact that UK labor wage data was relatively healthy with Average Earnings including Bonus rising 4.2% vs. 4.0% consensus. However, with the market squarely focused on risk aversion, the labor wage news was not enough to rally sterling as the data in and of itself was not sufficiently inflationary to compel the BoE to consider another rate hike in April.
The market now turns its attention to the US Current Account report at 12:30 GMT and given the renewed concern about the structural integrity of the US balance sheet, the data could prove market moving.