Usd Losing Momentum on Weak Economic Data

The Usd declined in the US trading session based on increased credit concerns and lackluster economic data. The EurUsd rose nearly 100 pips to the high 1.47 level, while the UsdJpy slid 41 pips back to 109 on waning dollar strength. The GbpUsd made a slight move to the upside of roughly 23 pips, but could not trade through the 1.86 price. Equity markets declined in both Europe and the US as major banks are expected to incur further losses. Commodities added gains with oil at 114, and gold currently priced at 809. Bonds were mixed with the 2yr treasury tighter by 3bps and the latter end of the curve slightly wider with the 10 and 30yr yields up 2 and 3 bps respectively. The market is beginning to pullback bullish bets on the US economy, and the growing pessimism was reflected in dollar trading today.

German PPI rose 2.0% vs. 0.7% exp. which is evidentiary of rising inflationary pressure in the Eurozone. Price pressure is constraining consumer growth, which is in line with the recent trend of negative economic releases in the region. The ZEW Survey fell to -55.5 vs. the consensus figure of -62.0, this data supports the notion that weaker growth and rising prices of goods are likely to keep the Eurozone in a down cycle in the near-term. There were no economic releases scheduled for today, however the BoE is scheduled to meet tomorrow, and should offer more color as to what the central bank will do regarding the current financial situation in the region. We remain bearish on the cable going into the end of the year, as there is no indication that the UK economy will be able to pose a recovery in next few months.

US financial markets suffered as soft economic data was released in the housing sector, as well as inflation. Housing starts were marginally better than expected at 965k vs. an estimated figure of 960k. Housing starts fell to a 17 year low, which marks the continued deterioration that sector. PPI rose 0.7% vs. the consensus figure of 0.2%, which shows inflation at its highest level since 1981. Traders seem to be retreating from aggressive positions implying a sooner than expected recovery in the US. Looking at movements in treasuries, Bond Traders were building more bearish positions regarding the US economy for the last week. Traders should remain cautious as the trading environment is likely to remain volatile until the FOMC meeting in September. The willingness by the Fed to adjust monetary policy will provide more clarity as to when investors can look for a recovery in the US.

AC Markets
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