â€˘ Australian Dollar: Consumer confidence declines on higher gasoline, rates
â€˘ Japanese Yen: weighed by carry interest ahead of BOJ
â€˘ Euro: Above 1.41 as industrial sector shows little impact of high exchange rate
â€˘ USD: MBA applications on tap.
A tough day for dollar longs as none of the event risk data proved greenback positive, pushing the EURUSD back above the 1.4100 figure after the pair flirted briefly with breaking support at 1.40 just 24 hours earlier. First, the IDD survey of economic optimism surprised to the downside printing at 47.3 versus 49.0 expected. This was the lowest reading since April of 2007 and suggests that consumer spending is likely to remain moribund for the foreseeable future creating a drag on economic growth.
Secondly, the FOMC minutes revealed that Fed members expressed little concern over inflation, remaining essentially neutral in their assessment of pricing pressures and were more focused on risks to growth. While the latest communiquĂ© from the Fed showed little inclination to cut rates yet again in October, the general tone of the discussion suggested a willingness to loosen monetary policy further before the year end. That idea was reinforced last night by the San Francisco Fed Chief Janet Yellen who noted in a speech that a case for an additional rate cut in 2007 could be made even if the capital markets see no further financial shock. Ms. Yellen stated that the recent repricing of risk in the credit markets is in and of itself a contractionary event for the US economy suggesting that further easing may be necessary.
Meanwhile, on the other side of the trade the euro received some positive news as both French and Italian production data printed better than forecast. Coming on the heels of better that expected readings in German Industrial Production, the latest data from the region indicates that despite euroâ€™s relentless rise, EZ manufactures are able to adjust to the high exchange rate regime with minimal negative impact. This in turn took some political pressure off the ECB to immediately restrain euroâ€™s latest ascent, boosting the unit .
Overall the pair continues to trade in a consolidatve range between 1.40-1.42 and will most likely remain there until the end of the week when the currency markets see the latest results from US Retail Sales data. Presently, analystsâ€™ consensus calls for a 0.2% rise but if the number produces a negative print the EURUSD could well take out its recent record highs as markets will then begin price in additional rate cuts form the Fed.