NY Session: USD Firms as Risk Rally Falters

The U.S. dollar was mostly firmer as the risk rally faltered on concerns that France and Germany may not be able to reach an agreement on and reports that European bank recapitalization plan may fall short of expectations. German Chancellor Merkel spoke today and said that the EU summit on Oct. 23 will not be “the end point” and that “this is going to be a long and arduous road.” French President Sarkozy flew to Germany to meet with Merkel for discussions ahead of the summit as he said that talks are “stuck”.

The British pound was the only of the G10 currencies that was stronger against the buck following the release BoE’s MPC October meeting minutes which showed a unanimous vote to keep rates on hold at 0.50% and for additional asset purchases. Some members saw the case for ‘lager stimulus than otherwise’ and the minutes noted that QE could be adjusted showing that the BoE is willing to support the economic recovery. MPC member Broadbent spoke today and said that he’s confident QE will have some effect and reiterated that the BOE is confident that the surge in CPI is temporary. GBP/USD rallied on the day but was unable to break above previous highs of around 1.5850 where it faces resistance. The pair currently trades around the 1.5770 level.

In the U.S., housing data was mixed with building permits falling by more than expected (-0.5% m/m) to 594K (cons. 610K prior 625K) while housing starts spiked by +15.0% m/m to 658K from 572K (cons. 590K). CPI figures were also released this morning and were mostly in line with expectations with the headline CPI at 0.3% m/m (prior 0.4%) and 3.9% y/y (prior 3.8%). Core readings were slightly lower with the monthly core reading at 0.1% (cons. 0.2% prior 0.2%) and yearly print at 2.0% (cons. 2.1% prior 2.0%).

The Fed’s Beige Book was released today and noted that ‘consumer spending was up slightly in September’ and that the U.S. economy maintained growth amid doubt on the outlook. The Fed also stated that ‘cost pressures eased’ and labor market conditions were little changed. U.S. equity markets were unable to extend gains and fell in the later part of the date after a brief period in positive territory. The DJIA finished the day lower by about -0.62% and the S&P 500 closed in the red by around -1.26%.

Canada leading indicators for September unexpectedly fell by -0.1% (cons. +0.1% prior 0.0). This was the first negative print since September 2010. USD/CAD rose to current levels of around 1.0200 as the Loonie softened on the back of the data, lower equities and declining oil. WTI crude fell by -2.54% at time of writing despite a surprisingly large decline in weekly inventories with -4.73M barrels (cons. +2.00M prior +1.34M).

On the data front for the upcoming Asia/Pacific session is Australia’s NAB business confidence for Q3 and RBA foreign exchange transactions for September Japan will release its weekly securities investments abroad figures, the September coincident and leading indexes as well as convenience store sales.