· Dollar Treads Cautiously Ahead Of Heavy Data
· Pound Unchanged Despite Weaker Retail Sales Data
· Yen Remains Under Pressure With Sharp Fall In Japanese Industrial Production
EURUSD
The dollar held onto its gains despite a weaker US GDP release ahead of what will be two days of heavy US, European and Japanese economic data. Jobs are on center stage as France and Germany present the latest reports on the health of their labor market. There are hopes for improvements in France, but German unemployment remains exceptionally high. The daily newspaper Berliner Zeitung reported that a non-seasonally adjusted 41,000 would be added on the month, while Reuters quoted a seasonally adjusted figure of 92,000, citing unidentified sources with knowledge of Federal Labor Agency data. These recent press leaks followed a claim by Die Welt newspaper a few days earlier that 20,000 job seekers would be added in March, pushing the total figure near a postwar unadjusted figure of 5.22 million. Though the sources disagree on the specific increase, there is little doubt that the legions of unemployed will swell for yet another month because of unusually cold weather and the continued impact of the Hartz labor market reform. Of course, the faltering economy's weak activity growth is also to blame, as the latest business surveys have suggested, perhaps more than any other cause. An actual seasonally adjusted figure of 100K could push the unemployment rate past the 12.0% threshold, which would spell disaster for the euro.
USDCHF
Trading remained very cautious in the majors going into tomorrow's personal consumption expenditures deflator and Friday's non-farm payrolls reports. Although fourth quarter GDP in the US remained unrevised, the GDP price deflator was notched higher by 0.2%, from 2.1% to 2.3%. This confirms the Fed's fear that inflationary pressures are rising and as a result, we could see a similar rise in the PCE report, which also happens to be the Greenspan's favorite measure of inflation. The disappointing GDP release was a primary result of slower inventory growth. As for non-farm payrolls, estimates run the gamut from 165k to 300k according to the latest Bloomberg survey. Tomorrow's Chicago PMI report and Help wanted Index should shed more light on the health of the labor market. So far, we know that the employment component of the Philly Fed Survey deteriorated in the month of March while the same data for the Empire State manufacturing survey actually reflected improving conditions. According to the Conference Board's Consumer Confidence survey, more people found "jobs hard to get" during the month of March. Yet jobless claims remain low and supports continual strong job growth. As such, the dollar will be particularly sensitive to tomorrow's labor market data as a precursor to Friday's more important NFP report.
GBPUSD
The British pound was little changed against its two major counterparts today, losing a few pips to the dollar and gaining a few against the euro, despite a poor retail sales report. Though expectations were for a modest sales growth, the CBI's retailers' survey showed that retail sales had worsened in March, partially because of severe weather conditions at the beginning of the month. The CBI sales index dropped to a 6-month low, making this the worst performance since November 1992 in seasonally adjusted terms. While two Monetary Policy Committee Members had voted for a rate increase at the last meeting, weak consumer spending translates into a lesser chance for BOE rate hikes in the foreseeable future. This is especially true this time around given that recent inflation figures have come out lower than forecasted. The rate on the December Libor interest-rate futures contract has dropped to 5.06%, down from 5.21% at the beginning of the month, confirming the lesser likelihood of imminent hawkish monetary policy moves. No UK economic data is expected before Friday's Mortgage Approvals and Consumer Confidence data, both of which should be little changed from last month.
USDJPY
Despite some intra-day volatility, the Japanese Yen closed relatively unchanged following yesterday's decline. Japanese preliminary industrial production figures for February revealed that further disappointment in Japan's economy. Industrial production fell at a seasonally adjusted, month-over-month rate of 2.1%, the worst decline in a year. The median forecast of 33 analysts suggested a fall of 1.1%. Additionally, the average lending rate in February decreased to 1.324% from 1.551%, again suggesting hesitant investors, wary consumers, and a worsening economy. Labor earnings information was also released today, showing stagnant earnings growth. The markets await tomorrow's final fiscal year figures. Reports on March 31st, the last day of Japan's fiscal year, include the Tankan manufacturing and industrial reports, which could register at worse-than-expected values given today's industrial production figures. A weaker Tankan report could spur further gains in USDJPY.