How Will US Retail Sales Impact the Dollar? (page 2 of 2)

UK unemployment rose to the highest in seven months as jobless claims increased 9,000 to 819,300.

This followed a revised jump of 11,200 claims in April, as companies continue to cut workers as growth stalls. Financial service companies lead the job losses, as the effects of the subprime mortgage crisis linger.

The deteriorating labor market has also begun to depress wages as April's growth in average earnings including bonus slowed to 3.8 percent from 4.0 percent in March.

Meanwhile, the trade deficit grew to -£7594 from a revised -£7147 as a 3.7% increase in exports was outpaced by rising imports. The current housing slump and rising inflation has squeezed consumers and weighed on domestic consumption, which will suffer further as job losses mount.

The BoE has turned hawkish in the face of inflation rising to its 3% threshold, but the weakening economy confirms that their decision to leave interest rates unchanged next month will not be an easy one.

Canadian, Australian and New Zealand Dollars Rally as Commodity Prices Strengthen

The Canadian, Australian and New Zealand dollars all strengthened against the greenback as oil and gold prices edged higher.

New concerns about supply drove crude oil prices up more than $5 a gallon while gold, which is often seen as an inflation hedge increased more than $14.

Australian employment numbers are due for release this evening and even though consumer confidence fell to a 16 year low, employment growth may have actually increased last month because the employment components of both the service and manufacturing PMI reports accelerated.

New Zealand on the other hand will be releasing their business PMI report and food prices. We expect the Australian dollar to continue to outperform the New Zealand dollar.

USD/JPY Retreats as Dow Tumbles 200 Points

After hitting a 3 month high yesterday, USD/JPY fell as the Dow tumbled more than 200 points.

Over the past few days, there has been no cohesiveness amongst the Yen crosses as pairs like EUR/JPY accelerated while USD/JPY retreated. Japanese economic data was surprisingly strong with growth in the first quarter revised to 1.0 from 0.8 percent.

The trade surplus and the corporate goods price index was also stronger than expected, but that will not be enough to convince the Bank of Japan to raise interest rates tonight.