Sterling Remains Weak On Political Concerns

US Dollar
Dollar strength reigned again on the day even as data was continually light for the market.  Spurring further bidding for the greenback seems to be continuing profit taking on previous moves by the majors over the past week.  Adding to the notion was visible evidence, or lack there of, from economic data of the world’s largest economy including initial jobless claims data, continuing claims and wholesale inventory surveys released in the New York session.  According to the Labor Department’s weekly report, first time claims for unemployed workers declined to only a 310,000 claim figure, from the 315,000 printed in the previous week.  Though below the 4-week moving average, investors remained somewhat concerned as continuing claims continued to trek higher.  Expected to only rise to 2483K, the figure was higher by 9K at 2492K and is suggestive of the fact that fewer people are finding jobs in the near term.  Additionally disconcerting was the wholesale inventories report for July.  Rising by 0.8 percent for the second consecutive read, the higher figure suggests that companies may be paring back on new orders in order to burn off excess inventories.  Should this prove true, the figure would simply be a reflection of the less than expected orders figures that have been released in previous months.  Subsequently, looking ahead, the lower and disappointing figure would also be coupled with a lower than expected retail sales figure, due out next week.  Advance retail sales figures are expected to remain relatively unchanged in the month as consumers may be hesitant to spend on lower economic prospects.  Although not immediately pertinent to the session’s market conditions, the figures do lend a bearish bias towards the underlying currency as they are coupled with lower figures expected for next week.

Euro 
More data to confirm the turnaround in the Eurozone as German industrial production rose at a surprising rate even as traders sold the domestic currency against positive suggestions.  According to the government report, overall industrial production rose 1.2 percent on the monthly comparison.  The figure jumped over consensus figures that pitted growth at a 0.5 percent rate.  Subsequently, this figure boosts the overall annualized measure higher to a 4.7 percent, above the prior month’s tick.  Coupled with hawkish statements from policy makers and continued growth in the foreign export market, the better than expected number is certainly adding to higher expectations of rate hikes in the zone.  Although previous estimates had calmed slightly following the lower than expected sentiment reports late last month, the bullish fever may return soon as futures contracts are now pricing in the possibility of two more rate hikes towards year-end.  This optimism was initially stoked by ECB governing council member Axel Weber’s comments yesterday that the central bank has yet to take the possibility of further rate hikes after December off the table.  Taking a look ahead, the German trade balance figure is the only market-moving report left for the week.  With dollar-short likely squaring into the end of this week with the return of traders from the summer season, next week’s action will likely be reflective of further euro strength.

British Pound 
Pound sterling was subject to further selling on the session as continued profit taking ensued in conjunction with some pessimism over the current economic and political situation.  Still hovering over the United Kingdom seems to be growing concern over the recent dispute between Prime Minister Tony Blair and his Labour Party colleagues.  Although still stipulating his intent on stepping down in a year’s time this morning, PM Blair may have caused more damage as he remains reluctant to print an actual date.  This factor alone is likely to cause more contention in the near term as the recent departure of seven members was based solely on this idea.  Outside of politics, the Bank of England decided to keep rates at the current 4.75 percent.  Not surprising to the markets, the decision did weigh slightly on the currency as some had hoped for another 25 basis point surprise now rather than later.  Either way, speculation and sentiment still run strong of a final decision before year end as central bankers hold steadfast in their mission against inflation.  Separately, according to HBOS, housing prices rose once again by a whopping 1 percent in the month of August.  Beating consensus estimates of a 0.5 percent rise, the quarterly figure now boosts an 8.2 percent climb, definitely helping the case for the inflation hawk.

Japanese Yen 
The Japanese yen advanced across the board today as the market tuned into comments made by German Deputy Finance Minister Thomas Mirow.  According to Mirow, the weak Japanese currency was a topic of concern for European officials as well as other global economic leaders.  Just last week, the EURJPY reached an all-time high 150.70, stirring concerns over the repercussions of cheap Japanese goods on the global market and expensive imports entering the Land of Rising Sun.  Considering this, the Deputy Finance Minister said the currency’s weakness would definitely be an issue presented at next week’s G7 meeting in Singapore. In other news, data today was headlined by the 17-year low in the preliminary read of the Leading Economic Index for July.  Below the expansionary/contractionary cutoff, at 40 percent for the month, the weak outlook for economic growth was primarily the result of large declines in the Topix Stock Index over the month.  Looking ahead to tonight, the market will hone in on the BoJ’s rate decision.  The overwhelming consensus is for the policy group to stay their hand ahead of elections taking place later this month and considering the tame growth and inflation indicators that have hit the wires recently.