Dollar calm after better than expected Chicago PMI (page 2 of 2)

British Pound

This morning's news of the lowest UK consumer confidence in two and a half years elicited barely a flinch from the pound as the currency even managed to end the day higher against most of the majors, including the dollar.

The index, published for the European Commission by market research group GfK, fell from -8 to -9 while economists had expected it to rise to -6. The results did not reveal an improvement in any of the surveyed areas while particular weakness was found in consumers' outlook of the climate for major purchases.

With the unemployment rate up to 4.9%, nearly a two-year high, and housing price declines creating the perception of lower wealth, it seems that the recent recovery in consumer spending may not last.

Retail sales data had taken a turn for the better in several of the latest reports, but much of the progress may be attributed to the deep discounts being offered by businesses after sales have been anemic for so long. Today's news certainly signals that the economy may be veering deeper into the trough of the business cycle rather than making a sustainable recovery.

Japanese Yen

Light trading left the yen fixated in a 32-pip range against the dollar since before yesterday's close of the New York trading session. Even news of the Nomura/JMMA Japanese manufacturing PMI reaching a two-year high failed to move the pair.

The index was boosted by a strong upturn in export orders while output and domestic orders both remained strong. Being a leading indicator for overall economic growth, this increase bodes well for the country's fourth and first quarter GDP numbers. On the other hand, it seems that inflation is still being held down as the survey's index of output prices stayed below the expansionary threshold for the second month in a row.

Competitive pressures and building warehouse inventories are preventing companies from passing higher costs onto consumers, which will only further delay the country's foray back into a state of positive consumer price inflation.