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USD: Not Terrible Is Apparently Good Enough

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TODAY'S BIGGEST PERCENTAGE MOVERS

THE STORIES IN THE CURRENCY MARKET

EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%
06/22 Meeting 08/09 Meeting
NO CHANGE 58.0% 54.9%
CUT TO 0BP 42.0% 40.1%
HIKE TO 50BP 0.0% 5.0%

USD: NOT TERRIBLE IS APPARENTLY GOOD ENOUGH

Better than expected economic data from the U.S. and China made investors feel a tad less worried about the outlook for the global economy. Consumer spending in the U.S. declined but not by as much as everyone had feared. When your expectations are so low, it doesn't take much to beat them and the fact that consumer spending was not as abysmally weak as the latest non-farm payrolls report was enough to encourage investors to take on some risk. U.S. stocks enjoyed their strongest rally since April 20 th and this strength helped to ease safe haven flows. The U.S. dollar, Japanese Yen and Swiss Franc traded lower against all of the high yielding currencies but the rally in USD/JPY and USD/CHF reflects an improved appetite for U.S. dollars. Whether this can be sustained remains to be seen but we cannot ignore the fact that being less worse can still be bad. Consumer prices, the Empire State manufacturing survey, Treasury International Capital report and industrial production are scheduled for release tomorrow. These reports will provide additional color on the performance of the U.S. economy but barring any large sized surprises, they typically are not as market moving for the U.S. dollar as today's reports. CPI is important if inflation is a concern but inflationary pressures are muted. It will be important to keep an eye on the manufacturing data but the big test will be the TIC report because it is a direct measure of foreign demand for U.S. dollars.

Although consumer spending contracted for the first time since June 2010, the decline in retail sales was not as sharp as the market had feared. With job growth slowing as much as it did last month, everyone was worried that consumers would be very stingy in the month of May. Consumers cut spending by 0.2 percent but economists had anticipated a drop of 0.5 percent. Even though the April numbers were revised downward, the fact that retail sales did not drop anywhere near 1 percent was enough to offer relief to the currency market. In fact, expectations for both U.S. and Chinese economic data was so low that the movements in the markets today can be best described as a relief rally. The rally in risk indicates that investors are relieved that economic outlook is only grim and not atrocious. At the end of the day, excluding auto purchases, consumers are still spending.

Retail sales less autos rose 0.3 percent on increased demand for building materials, online shopping, eating and drinking. Aside from autos, electronics, furniture and departments stores suffered the most. Producer prices also rose more than expected and collectively this morning's stronger than expected economic reports drove the U.S. dollar higher against the Japanese Yen. Although risk appetite has benefitted from this morning's reports, the rally has been limited because unless there is a 2 percent rise in retail sales in the June, consumer spending will detract from GDP growth in the second quarter.

EUR: WORKING TOWARDS A PLAN FOR GREECE

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GBP: CPI GROWTH STEADY, EMPLOYMENT UP NEXT

AUD: LIFTED BY CHINESE AND US DATA

As the market focused on the US data today, all three of the commodity currencies traded higher against the dollar. In the late North American session, the Canadian dollar strengthened against the greenback to 0.9673, a level not seen in almost two weeks. The Australian dollar continued its second-day climb while the New Zealand dollar bounced back amid an improved sentiment. As China's output growth and US retail sales beat expectations, risk appetite had gradually returned to the market. The share of plant capacity in use rose to 79 percent in the first quarter, the highest since the end of 2007, Statistics Canada said today in Ottawa. Economists in a Bloomberg survey predicted the rate would be 77.2 percent. Meanwhile, oil prices rebounded from its lowest level in a month in New York. The combined effect pushed the loonie to its highest level this month. The gauge of corporate Australia's health slumped for the third successive month, to just 1 point, indicating that a growing number of firms were finding the economic environment tougher. The National Australia Bank business survey, published yesterday, also highlighted the widening gap between mining and other sectors, prompting NAB to cut its forecasts. Nevertheless, the overshadowing news from the US and China boosted the comm. dollars because at the end of the day, growth in Australia and New Zealand will largely depend on growth in China and the U.S.. In addition to the Westpac consumer sentiment index from Australia, retail sales from New Zealand and manufacturing sales from Canada, risk appetite in the market will continue to hinge upon U.S. data.

JPY: BOJ UPGRADES ECONOMIC ASSESSMENT

GBP/USD: Currency in Play for Next 24 Hours

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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