• USD traded lower against the majors as US GDP data reported better-than-expected results for third quarter.
  • EUR gained against the USD as Eurozone consumer confidence edged higher.
  • JPY traded flat but within ranges of 20-month lows against the USD after the BoJ set a 1% inflation target on monetary stimulus.

 

USD – The US dollar traded lower against the majors as the higher-than-expected US economic growth data for the third quarter bolstered the market's appetite for risk-taking. The US economy grew faster than previously estimated in the third quarter as exports and government spending provided a lift, but that boost is likely to be lost amid slowing global demand and a move towards tighter fiscal policy. The Commerce Department reported gross domestic product expanded at a 3.1% annual rate, revised from the 2.7% pace reported last month and beating estimates of a 2.8% growth. It was the fastest growth since late 2011 and also reflected a slightly better pace of consumer spending than previously estimated.  Exports grew at a 1.9% rate, rather than 1.1 percent. However, imports fell for the first time since the second quarter of 2009. That narrowed the trade deficit which normally contributes about 0.38% point to GDP growth. The drop in imports is a sign of weaker domestic demand and the boost from exports is likely to be short-lived against the backdrop of a cooling global economy. Investors also shrugged off data showing US initial jobless claims rose in the latest week. The Labor Department reported jobless claims rose to 361,000 in the week ended December 15, which was higher than the market's forecast of 357,000. Meanwhile, the Philadelphia Fed Manufacturing Survey was reported at +8.1 in December, beating estimates of -3.0. However, the index of US leading indicators fell in November, signaling a slowdown in the economy early next year as companies curb investments and as global growth cools.

EUR –The euro gained against the US dollar after Eurozone consumer confidence edged higher in December compared with the previous month. The Commission reported consumer confidence in the 17-member Eurozone rose 0.3 to -26.6 this month from a November figure of -26.9. Consumer spending accounts for more than half of Eurozone economic output, but with the effects of the debt crisis decreasing disposable income, households have not been in position to contribute much to the economic recovery. German producer prices fell -0.1% m/m and slowed to +1.4% y/y. Import prices were unchanged from the prior month and grew 1.1% y/y. In Italy, retails sales disappointed, unexpectedly falling by -1.0% m/m and -3.8% y/y. Despite the end of year fiscal cliff loom, the euro is well supported today as the better-than-expected US GDP figure increased risk appetite for the currency.

GBP – The pound traded higher against the dollar, despite the lower than expected UK retail sales data.  The UK retail sales were flat in November, revealing that consumer confidence continues to remain weak.  The expected 0.4% growth was not met, but actual economic data showed that sales saw a 0.1% growth.  Meanwhile, the BoE announced yesterday they will not inject further liquidity into the economy, as they foresee slow economic growth in Q4.  Although retail sales failed to rise in November, expect the pound to continue to be well supported in the final quarter of 2012.

JPY – The JPY traded at an almost 20 month low against USD after the Bank of Japan boosted monetary stimulus and agreed to review its 1% inflation target. The Bank of Japan expanded its asset purchase program by 10 trillion yen, while committing to review their inflation target in January. Thus far, this has been the fifth time the BoJ has expanded asset purchases in 2012, which is the most frequent easing in a calendar year since 2001. For comparison, the Fed plans to purchase just over $1.0T of assets in 2013 compared to around $430B planned through the BoJ’s asset  purchase program. It  leaves  the  BoJ with more work to do to meet current market expectations  required  to  encourage further material weakening of the yen through  more  aggressive  monetary  easing.  Their next meeting in January will keep investor expectations alert for more aggressive BoJ monetary easing ahead.

Commodity Currencies – Commodity currencies traded lower after a slight increase in crude and a significant drop in gold prices. The price of crude oil edged up 0.40% and settled in the range of $90.23. However, gold prices sank 1.5% to the range of 1,642.01 after better-than-expected US GDP data increased risk appetite for higher yielding assets. The CAD returned to a session-high against the USD after data showed Canadian retail sales in October hit a record high for the third consecutive month. Statistics Canada reported domestic retail sales increased 0.7% from September, led by higher sales in the car and parts industry and gasoline stations. The New Zealand and Australian dollars pulled back from their recent sell-off, suggesting profit taking has halted at current support levels of AUD 1.0480 and NZD 0.340.

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