Global Growth Slowdown Spark USD, JPY
The key gainers in the currency market for the Wednesday session were the yen and dollar, both advancing sharply amid heightened risk aversion over mounting fears for a global recessionary environment. Crude oil also slumped, falling to its lowest level in 8-months at $100.32 per barrel as traders continue to anticipate a slowdown in demand in the near-term, prompted by deterioration in global economic fundamentals.
The economic reports earlier in the session saw a larger than anticipated US trade deficit, which burgeoned to its highest level since March 2007. Consensus estimates were expecting the July trade deficit to increase to $58.0 billion from $56.77 billion previously, instead the deficit swelled to $62.2 billion for July versus an upwardly revised $58.84 billion deficit in the month prior. The exports component hit a record, up 3.3% to $168.15 billion compared with $162.79 billion from June, while imports also expanded to record levels, increasing by 3.9% to $230.35 billion versus $221.65 billion. The July oil import price was up 6.4% to a record $124.66 per barrel. With oil retreating sharply from the record levels in July, we look for the deficit to pull back somewhat over the coming months. Also released were weekly jobless claims, which edged up marginally to 445k from 444k a week earlier.
The dollar surged to a near one-year high against the euro at 1.3881 and a fresh 2 ½-year high versus the pound at 1.7443. Lingering fears over the scope for a recession to hit the UK in the coming months continue to drag the sterling lower. The catalyst for the sell-off was comments from BoE Board Member Blanchflower, who expressed fears that job losses may triple amid a larger than expected decline in the UK economy. Meanwhile, traders shrugged off comments from BoE Governor King, suggesting interest rates may remain on hold in the interim. King, speaking before the Treasury Committee, said that while the growth outlook had deteriorated, inflation had also increased, potentially sparking further increases in wages.
US data slated for release on Friday include August PPI, retail sales and the September University of Michigan consumer sentiment survey. The headline PPI reading is seen declining by 0.5%, versus a 1.2% increase in the previous month while core PPI is estimated to ease to 0.2% from 0.7% from June. Retail sales are expected to slip to 0.2% for August, reversing a 0.1% decline from the previous month. The excluding-autos reading for retail sales are seen posting a 0.2% drop versus a 0.4% increase from June. Lastly, the preliminary University of Michigan consumer sentiment survey is forecast to improve to 64.0 from 63.0.
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