The Euro fell back after hitting a high of 1.4268 during the overnight Asian session, and has held within a tight range between 1.4200 – 1.4251 over the last few hours. On the economic docket, the Euro-Zone trade deficit widened to a new record high of 6.4B from a revised reading of 3.5B in June.
[U][B]Talking Points[/B][/U]
[B]• Japanese Yen: BoJ Holds Rate Steady at 0.50%
• Pound: Unemployment Increases, Jobless Claims Jumps to
• Euro: Trade Deficit Hits Record High
• US Dollar: Current Account, Housing Starts, and Building Permits on Tap[/B]
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Euro, Pound Gives Back Overnight Gains as Economic Data Fails to Impress
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The Euro fell back after hitting a high of 1.4268 during the overnight Asian session, and has held within a tight range between 1.4200 – 1.4251 over the last few hours. On the economic docket, the Euro-Zone trade deficit widened to a new record high of 6.4B from a revised reading of 3.5B in June.
The Euro-Zone trade deficit surged to a new record as global trade conditions falter. The deficit increased to 6.4B from 3.5B in June, and may fall further into negative territory as foreign demands fade. Slowing demands paired with stalled growth suggests that that economic activity may continue to falter for the rest of the year, and could force the ECB to lower the interest rate by next year. Meanwhile, construction output fell for the fifth consecutive month, slipping to -3.3% from a revised reading of -3.0% in June.
The pound gave back gains from the overnight session after reaching an intraday high of 1.7978. Cable moved back below 1.7900, and remains range-bound between 1.7810 – 1.7890. U.K. labor market weakened further as jobless claims surged to a fresh record high of 32.5K from a revised reading of 27.8K in July. The claimant count rate increased as well, rising to 2.8% from 2.7%, which suggests that labor demands may continue to falter over the coming months. The ILO unemployment rate ticked higher as firms continued to cutback on employment, rising to 5.5% from 5.4% in June. The bigger than rise in unemployment suggests that economic activity may deteriorate further as firms continue to cutback on employment, which may lead the BoE to reduce the benchmark interest rate by next year.
The USDJPY dipped to an intraday low of 105.14, but bound back to hold above 105.50. The Bank of Japan voted unanimously to leave the interest rate unchanged at 0.50% as the world’s second largest economy continues to face high inflation and slowing growth. The central bank noted that economic activity remains sluggish, and went on to say that ‘tensions in global financial markets have increased and there are downside risks to the world economy.’ With Lehman Brothers filing for bankruptcy and AIG taking a $85B infusion from the Fed, the BoJ has increased their efforts to calm the markets by injecting 5.5 trillion yen in the past two days.
The economic calendar for the U.S. is fairly light compared to yesterday, but may generate volatility for the greenback as the U.S. docket lacks market moving potential until the following week. The current account deficit is expected to increase to -$179.3B from -$176.4B in the first quarter, which could lower growth expectations for the world’s biggest economy as global demands waver. Meanwhile, Housing starts and building permits are anticipated to fall to 950K and 925K from 965K and 937K respectively, which could fuel bearish sentiment for the dollar. However, an unexpected rise in the housing data could provide dollar support, which would allow the greenback to extend its gains against the major currencies.
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