Yen Looks Ahead To Tomorrow's… … GDP Release

US Dollar – The dollar moved markets today as U.S. data affected the majors across
the board. After strengthening over the past few weeks, the dollar fleetingly looked
like it may have met its match this morning, posting a record trade deficit along
with higher than expected initial jobless claims. September's trade balance was
released at a record $66.1 billion, almost $5 billion more than expected. However,
the market quickly brushed off the staggering figure as traders began to realize
that the number was heavily affected by the aftermath of Hurricane Katrina. Imports,
namely petroleum, surged in price and volume as production in the Gulf Coast was
temporarily suspended during the month and energy prices soared to record levels.
Comparatively, exports during September dropped by the most in four years. However,
as foreign economies begin to improve and a trade agreement with China finally takes
place, trade should regain strength in the coming months. Traders additionally
restocked dollar positions as the University of Michigan released a far better than
expected consumer confidence reading that rose from the previous 13-year low, the
most soothing factor for dollar woes this morning. Coming in 5.5 points higher than
last month at a reading of 79.9 for November, retailers are predicting strong
holiday sales as consumers overcome oil shocks and hurricanes. Finally boosting
greenback demand later on in the afternoon, the monthly budget statement for October
narrowed, posting more than $10 billion less than September, almost $3 billion less
than expected.

Euro – The euro looked to be gaining some strength during the Asian session,
reaching its high for the day against the dollar of 1.1797 with the announcement of
the US trade deficit. But the currency continued its fall shortly after reaching a
two-year low against the dollar based on high US confidence data and a smaller than
expected US budget deficit triggered a technical sell off. A large bulk of today's
European data came out of France, its third largest economy. Industrial and
manufacturing production rose for the second month, contrary to expectations, by 0.2
and 0.8 percent, respectively, possibly signaling strengthening growth. French
consumer price inflation was lower than expected with October's year-on-year changes
of 1.8 percent, or 2 percent on an EU harmonized basis, as oil prices failed to seep
into other sectors of the economy. French GDP rose more than expected as well, by
0.7 percent in the third quarter, the most in over a year, versus 0.1 percent in the
second quarter. These numbers indicating a pick-up in economic health and a fall in
inflation stirred a bit of confusion, but the real conundrum of the day came about
an hour later. The European Central Bank released its November monthly report
detailing that policy makers were concentrating more on headline inflation which is
being pushed up by volatile energy prices instead of relatively tame core inflation
numbers. This is completely contradictory to statements made by ECB President
Trichet yesterday about high oil prices failing to have second-round effects. His
statements caused traders to speculate that the bank would not raise rates until at
earliest February. However reports today, noting that headline inflation stands at
2.5 percent, well above the target rate, indicate a move could be expected much
sooner. Despite the positive data and the now hopeful prospects for a rate hike to
help out the currency, the conflicts held back any potential gains for the euro,
leaving it to the whims of the ever-strengthening dollar.

British Pound – The pound continued its overall gain on the dollar today although it
took traders for a bit of a ride along the way. The morning began with the currency
strengthening in anticipation of the Bank of England rate announcement. The MPC, as
expected, kept the rate at 4.5 percent and did not release a statement with the
announcement. The currency reacted little after the announcement although the debate
still rages on. Some feel that the MPC may follow up with another rate drop early
next year to boost the still faltering economy. Manufacturing and spending numbers
have continued to come in weak, signaling that the August cut may not have helped
enough. As prospects look dim coming into the vital holiday shopping season, the
economy could suffer even further if consumer spending and confidence do not pick up
considerably. There are also those that believe the worst is over and inflation
issues will come to the forefront in the coming meetings as businesses may need to
start deflecting higher costs sustained from the shock in oil prices to consumers.
For now, however, both factions do agree that the bank will stay at the current rate
until at least early 2006. Though little reaction to this UK news was seen, the
pound took part action in US data action throughout the day while closing the day
little changed from yesterday's New York close.

Japanese Yen – The yen continued on yesterday's loss trend against the dollar today.
The currency traded steadily through the Asian session before poking its head out to
capitalize on a record US trade deficit announcement, reaching an intra-day high of
¥117.37. The glory was extremely short-lived, however, with USDJPY peaking only 2
and a half hours later at ¥118.19 and stayed at around that level for the rest of
the day. Although the dollar led the action in the pair today, Japan is set to
release a plethora of data tomorrow including GDP, price indexes and industrial
production data, which may help the Bank of Japan better gauge when they can safely
abandon their loose monetary policy. Today, machine orders were shown to have
dropped 10 percent in September, a fall 4 percent greater than expected, after
jumping last month. The heavy fall is probably due to a comparison to the extremely
high numbers from last month. There was still a decent year-over-year rise of 4.8
percent causing the market to mostly ignore this data, looking to the US and
tomorrow's releases for movement.

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