USD – The dollar begins the day mixed as stocks and commodities diverge. Stocks took an early hit after disappointing economic data was released, but commodities are mostly higher as the longer term outlook for the economy continues to improve. PPI data unexpectedly contracted by 0.2% – the first decline in five months – far off last month’s 1.1% gain and short of the 0.2% rise that was expected for October. Prices remained subdued last month as a drop off in demand from elsewhere around the globe outdid a pickup in activity in the US. Meanwhile, retail sales declined for the first time in four months at -0.3%, but the data is heavily skewed by the impact Hurricane Sandy had on the Northeastern part of the country towards the end of the month. In fact, the measure will likely bounce back with several above average months with retailers benefiting as homeowners up and down the Eastern seaboard repair and rebuild from the storm. Moreover, with the steady improvement seen in the labor market throughout the third quarter, investors are anticipating a strong holiday sales season. Elsewhere, investors took note of continued dovish rhetoric from the Fed. Most recently, SF Fed President Yellen suggested that the FOMC should tie interest rate expectations to specific unemployment level goals rather than providing date guidance. With the Fed’s third round of QE being the primary reason for the dollars relative weakness, signs that policy tightening is still far away will keep the dollar’s gains in check in the near term.
EUR – The EUR consolidated within its recent ranges overnight as investors remain concerned with the region’s ongoing debt crisis. However, with no new material developments, investors are willing to “wait and see” where the next round of negative news will come from. Reports overnight suggest that Portugal is struggling to meet tax revenue goals due to weaker growth, the IMF is rumored to be considering an exit from the various Greek bailout programs, and sustainability of Spain’s debt load remains a cause for concern. On top of these ongoing concerns, labor unions are staging strikes across the Eurozone today, with the general economic disruption the exact opposite of what the currency bloc’s member nations need. ECB officials are still seeking to win support in Germany for the proposed OMT bond program. Yields on Spanish and Italian bonds have consequently begun to edge higher as the optimism over the bond-purchase program begins to fade. The EUR will thus remain limited to its recent ranges with the downside likely prevailing in the longer term.
GBP – Sterling is lower this morning after the BoE suggested that the British economy may shrink in Q4 despite surprising growth at the end of Q3. Meanwhile, claimants filing for jobless benefits unexpectedly gained by 10.1K, and the unemployment rate ticked slightly lower to 7.8% as participants dropped out of the workforce. Consequently, the pound is falling back towards the lower end of its ranges as investors again begin to price in support from the BoE.
JPY – The yen tumbled by the most in eight months after PM Noda announced that he will dissolve parliament, paving the way for a December election. Preliminary polls suggest that his Democratic Party of Japan will likely lose. However, policymakers must be quite pleased with the initial reaction seen in the yen as its persistent strength has weighed heavily on Japan’s economy over the past four years.
Commodity Currencies – The commodity linked currencies are generally lower this morning despite higher raw good prices. The CAD and MXN both fell early after the disappointing retail sales report in the US – Canada and Mexico’s main trading partner – weighed on the outlook for both nations’ exports. Similarly, the AUD and NZD are both lower as investors remain hesitant to hold the higher-yielding, but relatively volatile currencies. The NZD is also lower after New Zealand retail sales data unexpectedly fell by 0.4% after at 1.3% gain in the previous reading.
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