US Dollar Sells Off as Contractionary Chicago PMI Signals Potential Weakness in ISM (page 2 of 2)

This is yet another indication for a potential slowdown in the UK economy in the months ahead. We have already seen signs of slower price growth in the housing market and now the GfK consumer confidence report is signaling that spending could also falter. This gives strong fundamental backing to the latest move in EUR/GBP. Manufacturing sector PMI is due for release tomorrow. The index is only expected to drop modestly which means that the British pound's value will continue to be dictated by the over or under performance of US data.

Japanese Yen

The Japanese Yen broke higher after comments from US Treasury Paulson. With the G7 meeting scheduled for next weekend (Feb 8-9 to be exact), traders have been looking for clues on whether the US will back Eurozone officials in criticizing the recent weakness in the Yen. Paulson indicated today that the US is watching the Japanese Yen very carefully and said that he was very frustrated with China's currency regime. Although these two statements do suggests that the US may support critical comments about the Asian currencies, his latter statements still leaves things up in the air. He said that economic fundamentals are driving the yen and that talks with China give the "best chance" for progress. In addition economic data released overnight continues to indicate that the Japanese economy is weakening. The biggest problem in the economy is earnings growth which continues to remain a problem as labor cash earnings fall by 0.6 percent and overtime earnings grow by a paltry 1.6 percent.

Commodity Currencies (CAD, AUD, NZD)

The Commodity Currencies are all stronger across the board thanks to firmer New Zealand and Australian data. The New Zealand trade deficit shrank from -0.805B to -0.785B while the Australian skilled vacancies increased by 1.4 percent and new home sales rose by 6.0 percent. Canadian data was softer, but the Loonie found support from the rebound in oil prices. CAD GDP rose by only 0.2 percent in month of November compared to a 0.3 percent forecast. The Australian and New Zealand dollars appear to be bottoming out while the Canadian dollar is doing the exact opposite.