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• British Pound Down as UK Unemployment Levels Climb to Highest Since 1995
• Euro, Swiss Franc Reach New Yearly Highs vs. the US Dollar Ahead of SNB Policy Statement
• Canadian Dollar Gains with Commodities - CPI Report Presents Risks for USDCAD
US Dollar, Japanese Yen Down as US Equities Break to Fresh 2009 Highs
The US dollar and Japanese yen were among the weakest major currencies as US equities and FX carry trades made headway amidst broad improvements in risk appetite a day after Federal Reserve Chairman Ben Bernanke said the US recession has probably ended. US economic data was fairly supportive of Bernanke's claims, as the consumer price index (CPI) rose 0.4 percent in August and the annual rate edged up to -1.5 percent from -2.1 percent. The increase was due primarily to energy costs, as we saw core CPI rise only 0.1 percent during the month while the annual rate slipped to 1.4 percent from 1.5 percent, the lowest since February 2004. The news is generally in line with Federal Reserve forecasts for subdued inflation for some time.
Meanwhile, US industrial production results for August reflected a 0.8 percent increase, indicating that output improved for the second straight month. As we've seen with other manufacturing reports, the increase was due almost entirely to a jump in auto demand from the cash for clunkers program that ended on August 24, and it will be interesting to see if the sector will hold up as well in light of the program's completion.
Adding to the mix, data showed that the US current-account deficit narrowed in the second quarter to an 8-year low of $98.8 billion from $104.5 billion thanks to a smaller trade deficit as both imports and exports decreased.
British Pound Down as UK Unemployment Levels Climb to Highest Since 1995
The British pound proved to be one of the weakest major currencies yet again on Wednesday, and with EURGBP clear above the 200 SMA, there is additional potential for the currency to fall further against the euro. UK data was generally in line with expectations, but altogether highlighted the bleak macroeconomic view in the nation. The number of claims for unemployment benefits rose by 24,400 in August to 1.61 million, pushing the claimant count rate up to 5.0 percent from 4.9 percent. Furthermore, the number of people looking for jobs rose by 210,000 in the three months through July to a total of 2.47 million, which is the highest since 1995. The data comes on the tails of comments from Bank of England Governor Mervyn King, who said yesterday that unemployment is either going to keep rising or remain high even after the recession ends, which should keep consumption under pressure.
Related Article: British Pound Weekly Trading Forecast
Euro, Swiss Franc Reach New Yearly Highs vs. the US Dollar Ahead of SNB Policy Statement
The euro and Swiss franc were middle of the road currencies on Wednesday, as they slumped against the commodity dollars but rallies versus the US dollar, Japanese yen, and British pound. In fact, both the euro and Swiss franc hit fresh 2009 highs against the greenback. European data was in line with forecasts, as Eurostat confirmed that the annual rate of CPI growth rose to -0.2 percent in August from -0.7 percent, while core CPI went unchanged at 1.3 percent. This is essentially what the European Central Bank has called for in recent months by saying that inflation would likely fall negative mid-year before returning to positive territory in the following months.
Looking ahead to Thursday, the Swiss National Bank is likely to leave their 3-month LIBOR target range unchanged at 0.0 percent - 0.75 percent, but the thing to watch for in the SNB's subsequent policy statement is talk of FX intervention. The central bank reiterated during their last meeting in June that they would take firm action to prevent an appreciation of the Swiss franc against the euro, but 1.50 has really proven to be the one point in EURCHF to prompt them to take action. Overall, if the SNB takes a more aggressive stance on the issue this week, EURCHF could easily surge higher, but if the bank drops their statements on the topic altogether, the Swiss franc is likely to surge across the majors.
Related Article: Euro Weekly Trading Forecast
Canadian Dollar Gains with Commodities - CPI Report Presents Risks for USDCAD
The commodity dollars dominated on a day when oil and equities climbed higher, but the Canadian dollar was the laggard compared to the Australian dollar and New Zealand dollar. The Canadian dollar will face substantial event risk on Thursday morning, as data is anticipated to show that the annual rate of Canadian headline CPI growth for August edged up to -0.6 percent from -0.9 percent. On the other hand, though, the Bank of Canada's core measure is projected to ease back to a one-year low of1.6 percent from 1.8 percent. Such results would suggest that price declines are less the result of falling commodity costs and instead, downward pressures are starting to come into play for prices throughout the broader economy. The Bank of Canada said in their most recent policy statement that overall risks to its inflation projection are tilted slightly to the downside, and if we start to see even core measures of inflation fall toward zero, the Canadian dollar could pull tumble.
Related Article: Canadian Dollar Weekly Trading Forecast
Written by: Terri Belkas, Currency Strategist for DailyFX.com