USD – The dollar is sharply mixed this morning, falling against most of its European counterparts while extending its recent gains against the JPY and other Asian currencies. Stocks and commodities are struggling to break even after US weekly jobless claims surged last week to 439K. While the number is far higher than the 375K that was expected and up from last week’s 361K, the unanticipated spike is likely reflective of Hurricane Sandy and the negative impact it had on business up and down the East Coast. Nevertheless, a rebound is likely as local residents and businesses ramp up the recovery efforts. Elsewhere, CPI data came in as expected with a 0.1% m/m gain, but so-called core inflation with food and energy stripped out was slightly higher at 0.2%. A gauge of manufacturing in the New York region also came in better than expected at -5.22 versus the -8.00 that was anticipated, and up from last month’s -6.16. However, the index is a lagging indicator with the effects of the hurricane likely not having an impact until next month’s reading. The data is supportive of the Fed’s ongoing QE and lax monetary policies and gives credence to recent dovish statements from top FOMC members. With SF Fed President Yellen recently suggesting that monetary policy be linked to employment gains rather than a rather arbitrary timeline, policies will likely remain loose for quite some time in light of today’s numbers. This is keeping the dollar on the defense against many of its major counterparts, but losses will likely be limited to within its recent relatively narrow ranges.
EUR – The EUR edged back towards the higher end of its ranges even as the currency bloc officially slipped back into recession. The first reading of Q3 GDP released overnight showed that the regional economy contracted 0.1% after a decline of 0.2% in the second quarter. With member nations’ governments’ debt-cutting efforts, rising unemployment, and continued uncertainty over the weaker periphery nations’ economic struggles, even Germany saw a deceleration in its economy. German Q3 GDP slipped to 0.2% after a 0.3% gain in Q2. Meanwhile, regional inflation cooled to 2.5% in October after registering 2.6% the month prior. Nevertheless, ECB policies remain comparatively conservative even as their OMT bond program is still pending approval. Consequently, the euro remains relatively well supported even as weak economic fundamentals make its longer term outlook appear rather dismal.
GBP – The pound is mixed this morning, falling against the EUR while gaining against the USD. Sterling fell to a two-week low against its mainland European counterpart after a government report showed that UK retail sells fell by more than expected in October, coming in at -0.7% vs. -0.1% forecast. However, the GBP remains supported against the USD as the BoE looks to be turning a bit more hawkish with Governor Mervyn King recently citing higher inflation as a cause for concern.
JPY – The yen tumbled to a six month low this morning, extending a two-day slide sparked by PM Noda’s dissolution of parliament. With an election due before year end, it appears that former PM Shinzo Abe is set to regain the top seat. Abe has made his displeasure with persistent yen strength abundantly clear and is urging the BoJ to pursue “open ended easing”, much like the Fed’s current QE3 program. With his remarks sending both Japanese stocks and the yen higher, further rhetoric is to be expected with possible government intervention to follow once the elections come to pass.
Commodity Currencies – The commodity linked currencies are mixed this morning with the AUD weakening while the CAD and MXN gain. The CAD rose as the disappointing jobs numbers in the US – Canada’s primary trading partner – prompts investors to anticipate continued monetary easing. The AUD is lower this morning after a report showed that the RBA sold nearly $500M worth of AUD to foreign central banks in October – the most in more than four years.
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