Terror threat hurts Pound and Euro
JPY CGPI at 25 year highs. AUD employment 10 times better than expected French IP stagnant. USD Trade Balance on tap. On the news that UK’s national threat level was raised to critical with airline passengers told that all hand baggage would be banned on any flights departing from the country, it became clear
that once again, politics trumps economics in the currency markets as traders ignored overnight economic data and flocked to safety of US dollars and Swiss
francs. British authorities arrested a number of people overnight, effectively thwarting a terrorist plot to smuggle explosives on board and blow up several aircraft mid-flight between the US and
UK. GBP/USD and GBP/CHF made freefall drops of about 100 points on the news to 1.9000 and 2.3240,
respectively. EUR/USD also declined in sympathy towards 1.2850 on the terror threat news after probing the 1.2900 level in early European
trading. The USD didn’t beat out every currency, however, as USD/JPY made its way down from an Asian session high of 115.43 to 114.80.
On a day rich with economic data, Japanese Domestic CGPI exceeded expectations rising of 0.7% in July
versus 0.4% consensus. The monthly reading put the annual rate at a 25 year high of 3.4%, which bodes well for the Japanese economy as the gain was a result of not only accelerated commodity prices, but also growing final
demand. The news should bolster yen bulls counting on several more rate hikes out of the BOJ by year end. Consumer confidence out of Japan was encouraging as well, despite its failure to reach estimates of 49.0, as the reading rose towards the 50 boom/bust level to 48.6 in
July. The ECB’s August Monthly Report indicated that inflation could stay above 2% on average in 2007, and that the bank considers interest rates “low” following the August 3rd increase to 3.00%. Switzerland proved to be the shinning example of economic growth amongst the majors again this morning when the SECO Consumer Climate index jumped to a five year high of 12 in July versus a reading of 7 in
June. Finally, Australian labor data once again produced a massive surprise to the upside as the employment change came out 10 times higher than anticipated and hit 50.7K in July, bringing the unemployment rate down to 4.8%. The combination of the labor market figures, accelerating wage growth, and inflation figures rising well above central bank targets at 4% may lend further strength to the AUD/USD as the year comes to a close, especially if commodity demand from China continues to grow.