Talking Points
• Japanese Yen: Carry comes back as Nikkei recovers nearly all the losses from yesterday
• Euro: Trades to 1.4750 after yesterday’s dovish FOMC notes
• British Pound: UK Retail blows out estimates GBP rockets
• US Dollar: LEI on tap
The pound rocketed for more than 150 points after U.K. retail sales surprised to the upside indicating that the UK consumer is alive, well and still spending money. The UK Retail Sales printed at more than double the expectations of 0.3% rising to 0.8% and 5.6% on a year over year basis. It was the largest increase in 11 months.
Although, gains in food and apparel were expected, stronger than forecast sales in electronics and home goods demonstrate that so far at least the deteriorating housing market is having little negative impact on consumer spending. Tonight’s data will provide some breathing room for the BoE, allowing UK monetary authorities to follow their preferred policy of measured rate cuts as the MPC tries to balance inflation concerns against the slowdown in economic growth.
Many traders feared in the aftermath of yesterday’s news that David Blanchard pressed for a 50bp cut, UK monetary authorities would be forced to follow the Fed model and begin cutting rates more aggressively. However, tonight’s retail sales news along with last week’s healthy labor market data suggests that UK economy may be more resilient than most analysts believe.
Turning to the Fed, the EURUSD rallied and recaptured all of its losses in the wake of dovish FOMC minutes which suggested that the Fed will continue to cut aggressively to prevent further slowdown in US economic growth. The danger as we saw in yesterday’s CPI reports is that this policy is stoking the flames of inflation, but for the time being US monetary authorities simply do not care. The focus is on growth and to that end the labor market remains key. Therefore if today weekly jobless claims print above the crucial 350K barrier, the news may trigger further dollar selling in North American trade. More dollar weakness? Join us in the EURUSD forum.
