The US growth and inflation data was concentrated late in the week

The US growth and inflation data was concentrated late in the week and, generally, major currencies have been trapped within relatively narrow ranges as interest rate expectations have also been relatively stable. US retail sales rose 0.2% in August after a 1.4% increase the previous month while jobless claims fell to an 8-week low of 308,000 in the latest reporting week. Industrial production dipped 0.1% in August as utility output fell. The consumer inflation data was an important market focus, but failed to offer any surprises with headline and core inflation indicators both posting 0.2% monthly increases.

The US trade deficit rose to a record US$68bn in July from US$64.8bn the previous month. Exports dipped over the month and the high cost of oil pushed imports to a record level. The deficit failed to have a significant impact with markets unwilling to sell the dollar on trade grounds, especially as oil prices have fallen. The US currency found support close to 1.2750 against the Euro and strengthened back towards 1.2660 on Friday.

The US external deficits against Asian countries were also in greater focus ahead of the annual G7 meetings. There was further speculation over a push for stronger Asian currencies and this helped offer the yen some protection. The domestic Japanese data was generally weaker than expected, however, with estimates of lower investment spending and the yen weakened to lows beyond the 118.0 level against the US currency before a fragile recovery. The Japanese currency was undermined by renewed interest in carry trades as investors looked to increase exposure to high-yield currencies.
Source: VantagePoint Intermarket Analysis Software

ECB members retained a tough stance on monetary policy over the week and continued to suggest that interest rates would be increased again in October. There was no major Euro-zone economic data over the week.

The UK data had a mixed tone over the week, but the net balance was firm. Retail sales rose 0.3% in August with the annual rate rising to 4.3% due to upward revisions of previous data. Unemployment dipped slightly over the month while the annual inflation rate rose to 2.5% from 2.4%. Market inflation concerns were contained by the fact that headline annual wage inflation was held to 4.4% compared with expectations of an increase to 4.6% while underlying earnings growth fell to 3.7%.

The Swiss National Bank increased interest rates again with the repo rate rising to 1.75% from 1.50%. The central bank also increased its growth and inflation forecasts for 2006. The renewed market interest in selling low-yield currencies and a lack of warnings over franc weakness kept the franc on the defensive despite the interest rate increase. The Swiss currency weakened to lows beyond 1.5950 against the Euro and 1.2580 against the dollar.

Commodity prices fell sharply over the first half of the week with oil and gold prices dropping in tandem as oil prices slipped to six-month lows. The fall in commodity prices undermined the Australian dollar, although the currency found some support below the 0.75 level against the US dollar. A tough statement from the Reserve Bank pushed the New Zealand dollar to highs around 0.6650 against the US currency. Despite a temporary recovery, commodity prices remained on the defensive late in the week and commodity-related currencies were subjected to fresh selling pressure.
Source: VantagePoint Intermarket Analysis Software

Have a great day and a wonderful weekend.