Take a look at a chart of USDJPY and it will become rather obvious that the US Dollar is taking a beating.
â€˘ Swiss Franc: SVME PMI eases to 61.3, though output remains strong
â€˘ Euro: German unemployment rate hits a nearly 15-year low
â€˘ British Pound: Weighed down by drop in GBPJPY
â€˘ US Dollar: Second-tier releases on tap, markets awaiting Fridayâ€™s NFP report
Take a look at a chart of USDJPY and it will become rather obvious that the US Dollar is taking a beating. Indeed, the pair tumbled throughout the morning, breaking below support at 109 to target 108, while EURUSD punched above 1.4750. On the other hand, GBPUSD has remained heavy near 1.9750 as the GBPJPY cross has plummeted over 4 percent during the past two days. Check out Chief Strategist Kathy Lienâ€™s recent special report on the topic for more on the weakness of the British Pound.
Looking at todayâ€™s economic data, European news helped support the Euroâ€™s bullish break higher. The German labor markets tightened more than expected in December, as the unemployment change dropped for the 23rd consecutive month by 78,000, helping to pull the unemployment rate down to a nearly 15-year low of 8.4 percent. With German expansion widely expected to take a hit in 2008, the news indicated that household spending may help to pick up some of the slack of an anticipated slowdown in export demand. Furthermore, as the Euro-zoneâ€™s largest economy, the status of German expansion carries a bit more weight for the European Central Bank. Meanwhile, Euro-zone M3 money supply growth accelerated 12.3 percent in November from a year earlier, the fastest pace in 28 years. Commentary by ECB President Jean-Claude Trichet has frequently cited the issue of money supply growth as a sign of strong inflation pressures. As a result, the combination of resilient labor markets and rapid M3 growth could leave the ECB feeling somewhat hawkish and will support a Euro bid until Trichet starts to back away from his focus on price stability.
In the US this morning, the greenback faces a spate of second-tier reports, and nearly all of them will be used to attempt to handicap Fridayâ€™s non-farm payrolls report. While the NFP report hasnâ€™t sparked a significant amount of price action upon release in recent months, traders will still pay heed as a disappointing figure will essentially guarantee a January 30 rate cut. Yesterdayâ€™s release of the December FOMC meeting minutes showed that some members have become worried about â€śthe risk of an unfavorable feedback loop...leading to additional tightening of credit...(that) could require a substantial further easing of policy.â€ť Fed fund futures are completely pricing in a 25bp cut, but as US economic news gets worse and the DJIA tumbles relentlessly, speculation increasingly mounts in favor of the 50bp cut that FOMC members suggest is possible. As a result, the odds remain stacked against a sustained rebound in the US Dollar in the near term, and the prospects of the Euro hitting record highs above 1.50 once again continue to grow.
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