Talking Points
• Japanese Yen: Breaks Below 102.00 as Stocks Tumble Lower
• Pound: Spikes Above 1.75 Despite Mounting Job Losses
• Euro: Upside Inflation Risks Subside
• US Dollar: Retail Sales and PPI on Tap – Chairman Bernanke to Speak at 12:15 EST

British Pound Gains for Third Day Despite Recessionary Fears

The British Pound strengthened for the third consecutive day to spike above 1.7500 despite mounting growth concerns for Europe’s second largest economy. Jobless claims in the U.K. rose another 31.8K in September following a 35.7K increase in the prior month, which was followed by a 0.1% increase in the claimant count rate to 2.9%. Meanwhile, the ILO unemployment rate surged to an eight year high of 5.7% from 5.5% July, and the data suggests that businesses will continue to cutback on employment as the economy teeters on the brink of a recession. The downturn in the economy has certainly fueled expectations for further rate cuts by the BoE, which could drag on the Sterling going forward.

The Euro pulled back to hold near 1.3600 after reaching a high of 1.3647 during the overnight Asia session as cooling price pressures lowered interest expectations for the ECB. The annual rate of inflation slipped to 3.6% from 3.8% in August with the core CPI holding steady at 1.9% for the second straight month. The data suggests that upside price pressures have diminished since the first half of the year, and has fueled speculation that the ECB may ease policy further as Germany, Europe’s largest economy, is on the brink of a recession. Indeed, comments from ECB President Trichet yesterday continued to highlight growth concerns as the financial crisis spreads throughout the global market, and the central bank could be forced to act ahead of schedule as inflationary concerns are pushed to the backburner.

The USDJPY slipped below 102.00 to hold near the intraday low of 100.93 as stocks throughout Asia and Europe tumbled lower. The downturn in the stock markets have certainly strengthened the Japanese yen against all of its major counter parts, and concerns of a global recession continues to favor a bullish outlook for the low-yielding currency in the near-term.

Nevertheless, the scheduled event risks for the U.S. could trigger increased volatility for the greenback as retail sales are widely expected to fall another 0.6% following a 0.3% decline in August. In addition, the PPI reading for September could also drag on the dollar as economists’ project the index to slip to 8.7% from 9.6% on the back of falling oil prices. Finally, Fed Chairman Bernanke is scheduled to speak at the Economic Club in New York at 12:15 EST, and any indications that the central bank will ease policy further could fuel bearish sentiment for the reserve currency.

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