Daily Forex Analysis

Economic News

USD

There was some positive news for the greenback yesterday as the headline US Producer Price Index surprised on the upside releasing at 0.6 %, beating the expected figure of 0.1 % and this rise in producer inflation increases speculation that the Fed will cut rates in the near future. There was more good news to follow for the greenback as the US trade deficit shrunk to 58.1 B. The market was expecting the trade deficit to rise from last months figure of 59.2 B to 61.0 B, so this surprisingly strong data was the main driver of the greenbacks bullish burst against most of the majors. The two key factors responsible for shrinking the US trade deficit is the drop in oil prices and the weak USD. The decrease oil prices means that the US is spending less on imports while a weak dollar is improving the US exporter's ability to compete against the Chinese and US goods are gradually becoming a more preferable alternative to the foreign consumer. The greenback has been steadily pulling back lost ground against the GBP and the EUR in the last two days and yesterday's weak UK CPI figures coupled with the growing investor speculation that the ECB will not raise rates in September contributed to the continuing decline of the GBP/USD and EUR/USD crosses. The US and European equity markets suffered further losses yesterday and although the USD managed to hold its ground against the JPY it did eventually begin to depreciate against the Japanese currency giving further indication that the market is beginning to experience the full extent of a carry trade unwind particularly with today's looming hedge fund deadline. .......Read more.......