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• British Pound Gains Despite UK CPI Decline Below BOE's Target, Euro Falls With Investor Sentiment
• Swiss Franc Breaks Lower vs. Euro, Lessening SNB Intervention Risks

US Dollar, Japanese Yen Fall as Goldman Sachs (GS) Reports Record Earnings, US Retail Sales Rise

The Japanese yen was the weakest currency of the day, and the US dollar closed mostly lower as risk appetite remained fairly strong after Goldman Sachs (GS) reported record earnings less than a year after taking $10 billion in rescue funds from the US government. Indeed, Goldman's second-quarter net income was $3.44 billion, or $4.93 a share, beating expectations of $3.65 per share, according to estimates published by Bloomberg. That said, today's FX market moves were actually rather muted, as this news had already been priced in on Monday.

In other US news, advance retail sales were a bit stronger than expected, rising for the second straight month in June, this time by 0.6 percent. However, a breakdown of the report shows that auto sales and gasoline station purchases were the primary drivers of this increase. The former gained due to aggressive discounting by automakers, and while the latter may have been influenced by increased demand during the summer driving season, we also have to consider the impact of higher gas prices, as the index is not adjusted for inflation. In fact, today's release of the producer price index highlights how strong commodity prices were in June, as the headline index jumped 1.8 percent during the month, the sharpest rise since November 2007, on the back of higher energy costs. Excluding food and energy, PPI rose a comparatively smaller 0.5 percent, but this was still the largest increase in eight months. All told, today's US data indicates that prices are holding up better than demand, but that has more to do with energy costs.

This sentiment may be reiterated on Wednesday as the US consumer price index (CPI) is projected to show a 0.6 percent rise in headline inflation during the month of June, the sharpest rise since July 2008. However, the year-over-year rate of CPI growth is projected to fall to -1.5 percent from -1.3 percent, bringing the contraction in prices to the worst since January 1950. This sharp deviation in short-term and long-term price growth won't necessarily occur in core CPI, though, which as it is forecasted to rise 0.1 percent during the month and 1.7 percent in June from a year earlier, down from 1.8 percent in May. All told, the fairly stable core results should help allay deflation concerns, which may make this release of CPI as a non-event.

The main event risk for the US dollar tomorrow will come at 14:00 ET, when the minutes from the Federal Reserve's last meeting on June 24 will be released. Following that meeting, the markets saw no surprises from the Federal Open Market Committee (FOMC), as they left the fed funds target range at 0.0 percent - 0.25 percent and made no changes to their quantitative easing (QE) program. The status of QE is high on the minds of traders, so the comments contained within the minutes will be scoured for indications that they will increase their purchases of Treasuries, and if they are found, the US dollar could fall sharply. However, if QE isn't really mentioned but the sentiment amongst the FOMC members is judged to be somewhat pessimistic, the news could trigger risk aversion and increased demand for safe-haven currencies like the US dollar and Japanese yen.

Related Articles: US Dollar Weekly Trading Forecast, Japanese Yen Weekly Trading Forecast

British Pound Gains Despite Drop in UK CPI Below BOE's Target, Euro Falls With Investor Sentiment

The British pound made headway despite the fact the UK consumer price index slowed to a 1.8 percent pace in June from a year earlier, putting inflation below the Bank of England's 2 percent target for the first time since September 2007. Meanwhile, the euro pulled back as the German ZEW survey of confidence on the economic outlook unexpectedly fell in July to a reading of 39.5 from 44.8, which indicates that investors are less optimistic that that the Euro-zone economies will recover this year and that the financial markets are truly stabilizing.

On Wednesday, UK labor market reports are projected to show a buildup in the number of people applying for unemployment benefits, as the June jobless claims change is expected to rise by 41,300, marking the 16th straight increase. Meanwhile, the jobless rate is anticipated to hit 5.0 percent, the highest since September 1997, up from 4.8 percent. Like US non-farm payrolls, the jobless claims change is volatile in nature and can spark price action for the British pound when it misses forecasts, making this an indicator worth watching tomorrow morning.

Related Articles: Euro Weekly Trading Forecast, British Pound Weekly Trading Forecast

Swiss Franc Breaks Lower vs. Euro, Lessening SNB Intervention Risks

The Swiss franc was another one of the weakest majors, leading EUR/CHF to make a bullish break out of its recent falling channel formation. The move comes a day after the Swiss producer and import price index fell by the most in nearly 23 years, adding to evidence that the Swiss economy faces severe deflation risks and underpinning the reason why the Swiss National Bank has turned to physical intervention to try to prevent the Swiss franc from appreciating. However, with the currency falling lower on its own against the euro, there is less of a threat of central bank intervention in the near-term.

Related Article: Swiss Franc Weekly Trading Forecast

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Written by: Terri Belkas, Currency Strategist for