Weak US Retail Sales Could Send EUR/USD Back Towards 1.30 (page 2 of 2)

British Pound

Disappointing inflation data has sent the British pound lower. Producer prices dropped by 0.2 percent in the month of October, bringing the annualized pace of growth down to 1.7 percent from 1.8 percent. Core prices were firmer which has helped the GBP/USD hold above 1.90, albeit marginally. The housing market continues to remain very strong with house prices rising by an annualized rate of 8 percent in Sept according to DCLG.

Consumer prices are due for release tomorrow and unlike the rest of the world, economic data should indicate that the UK is still contending with inflationary pressures. The annualized rate should remain comfortably below the Bank of England's 2.0 percent target which will keep the market's expectation for another rate hike early next year intact.

Japanese Yen

The Japanese Yen has lost ground against the Euro and US dollar after a round of disappointing economic data. Both import and export prices softened in the month of October, bringing the Consumer Goods Price Index to a 6 month low. Inflation still remains very low in Japan, which limits the central bank's need to raise interest rates. However Bank of Japan Governor Fukui has been sending out a lot of mixed messages lately.

Most recently, he has said that the market should not rule out an interest rate hike by the end of the year, which was supported by comments from Deputy Governor Iwata. The Japanese government unfortunately is still adamantly against any move by the central bank. LDP policy head Nakagawa and former Finance Minister Takenaka warned against premature tightening of the economy. The age old battle of the BoJ against the Japanese government has led to broad based skepticism about whether Fukui will really have the power to deliver a rate hike this year even if he wanted to. This has attracted carry traders back into their yen short positions.

Commodity Currencies (CAD, AUD, NZD)

Commodity currencies are weaker across the board despite a more optimistic RBA monetary policy statement. The central bank is still worried about inflation and downplayed the recent disappointments in growth. New Zealand's producer prices slowed in the third quarter as the combination of lower energy prices and flat mining related prices cap gains in inflation. Input prices did come out stronger than output prices, which suggest that producers may be seeing their tighter margins.

Meanwhile both the Australian and Canadian economic calendars are empty tomorrow. New Zealand is set to release retail trade data and given the recent weakness in the economy in general, spending is expected to have been flat in the month of September.