The U.S. dollar initially lost ground against both the Euro and yen after core producer prices fell, but managed to recover against the Euro after comments released from French Prime Minister Dominique de Villepin called for collaboration among Euro zone monetary authorities over the countries exchange rate. Producer prices declined 1.6 percent last month following a 1.3 percent drop in September. The core reading of wholesale producer prices (which removes volatile energy and food costs), fell 0.9 percent last month. Retail sales also fell 0.2 percent after a revised 0.8 percent decline in September. The market will look towards speeches later today by St Louis Fed President William Poole and San Francisco Fed President Janet Yellen for any indication as to whether the Fed. will look at cutting interest rates as early as Q1 of next year. In the meantime, look for the dollar to remain within recent ranges on the back of this morning’s data.
The euro initially lifted against the dollar (after hitting a 2-1/2 month high last week), but had trouble sustaining its gains after Europe’s GDP and Germany’s ZEW survey released. Euro zone’s GDP released at 0.5 percent versus a call of 0.6 and 0.9 percent in Q2, while Germany’s ZEW survey for November released at -11. Also putting pressure on Europe’s single currency was talk from French Prime Minister Dominique de Villepin, who called for monetary authorities to focus on managing the countries exchange rate. With expectations for interest rates out of the Euro zone to still rise to 3.5 percent next month, look for the currency to remain fairly supported but contained to recent ranges.
The Japanese yen rose against the dollar and Euro after data released showing Japan's economy grew more than expected in the third quarter. Growth in Japan expanded at a 2 percent annual rate in July-September, doubling forecasts, while growth for the previous quarter was revised up to 1.5 percent. The news spurred speculative talk that the BOJ may raise rates as early as December by 25 basis points, bringing the countries overnight lending rate to .50 percent. Look for the yen to remain range bound as the market looks for any news to support an early rate rise in December.
Sterling weakened after touching a one and a half year high on Friday due to weak inflation data out of the UK. The CPI came in at 0.2 percent, falling short of the call for 0.3 percent, while retail prices released at 0.1 percent below a call for 0.3 percent. Look for the pound to remain under pressure as the market moves its focus away from interest rate hikes in the UK.
The Canadian dollar gained slightly after the release of lower-than-expected U.S. inflation and retail sales data out of the U.S. The market will look towards a quite week in Canada with September manufacturing shipments due out tomorrow and foreign securities transactions due on Thursday. However, with commodity prices slowing, look for the loonie to remain under pressure.
The Australian dollar found support, rising off of three-week lows against the U.S. dollar due to profit taking. The Aussie had fallen to its lowest level since Oct. 26, after news broke last week that China may be reassessing its currency reserve. The Reserve Bank of Australia said yesterday that underlying inflation should remain around 3 percent over the coming year, the top of its target range, however, financial markets are starting to price in a small chance of an interest rate cut in 12 months.
The New Zealand dollar followed its Aussie counterpart and gained ground after touching two-and-a-half week lows and after the release of the third quarter producer’s price index, which showed inputs rising 2 percent and outputs rising only 0.7 percent. The market will turn its focus to third quarter retail sales data due out tomorrow. The Reserve Bank of New Zealand held interest rates at 7.25 percent at its last meeting, but indicated that a need to tighten again may be on the horizon.
The Mexican peso gained 0.45 percent as Mexican shares lifted more than 1 percent on eased concerns about U.S. inflation and consumer spending. Mexico's IPC index gained 270 points to 24,458 points, an all-time high. Look for Mexico’s currency, however, to remain under pressure struggling to maintain today’s gains.
