Currency Comments

USD - White House cutting the growth forecasts used in its budget projections. GDP growth for 2006 was revised down to +3.1% from a +3.6% forecast made in June, while 2007 growth was cut back to +2.9% from +3.3%. some rumors about a revision on the unemployment rate pressuring the dollar a bit. But let's face it, it's an extremely thin market ahead of the holiday, and any rumor could drag the currency.

EUR - Data released this morning showed that growth in the Eurozone remains solid. French consumer spending rose 0.9% in October, which brought the year-over-year growth rate to a very respectable 4.2%, and Italian consumer confidence rebounded in November. The news had little noticeable effect on exchange rates, although the euro is stronger against the dollar this morning than it was yesterday.

GBP - It is a surprise that Rachel Lomax joined David Blanchflower ...Blanchflower was clearly always going to be a dissenter, given his belief that there is ample spare capacity in the economy, but we had thought he would be the only one. UK MPC minutes showed two dissenters (Blanchflower & Lomax) against the November 25bp rate hike. This was initially take negatively by GBP, although it soon bounced back. One could argue that this slightly reduces the risk of another rate hike in February, although market rate expectations have pulled back a little in any case in recent weeks. Also, much will depend upon the data and the MPC’s overall inclination to fight inflation suggests that a rate hike will follow in February.

JPY - Yen gains have come despite a downgrade in the government's view of the economy in the cabinet office monthly report, and seem to reflect some concerns of official displeasure with yen weakness.

AUD - With inflation already above the Reserve Bank of Australia's comfort level of 2-3 pct, the leading index is signalling that the bank made prudent decisions to raise rates in August and November.

CAD - The Canadian dollars weakened further today after the release of two weak Canada economic indicators. Canada retail sales surprisingly dropped 1.2% in September, well below the forecast of -0.4% and the previous month's reading of 1.0%. Excluding food and energy sales, core retail sales unexpectedly fell 0.9%, disappointing the market that expected a rise of 0.1%. Canada leading indicators rose 0.2% in October, below the expectation of a 0.4% increase. The Canadian dollar lost its edge since the beginning of this month as Canada announced that it planned to tax income trusts.