The U.S. dollar weakened against all of the major currencies following this morningâ€™s economic reports. The latest round of U.S. data was mixed but the tight consolidation in EUR/USD during the first half of the European trading session meant that the currency pair was begging for a reason to breakout. When jobless claims came out slightly worse than expected, the EUR/USD soared.
Although initial jobless claims surprised to the downside this week and was revised slightly higher last week, the increase was too small to raise any eyebrows within the financial sector. In fact, we can even say that claims were virtually unchanged and still consistent with an addition of 100k or more jobs in the month of August. Continuing claims also dropped to 3.305 million from 3.336 million and the 4- week moving average dipped to 364k from 369k. The housing market numbers on the other hand were mixed with starts falling 1.1% and permits rising 6.8%. Starts and permits have been moving in completely opposite directions since the beginning of the year which suggests a major disconnect between when builders file applications and break ground on new projects. At the end of the day however, record low mortgage rates is still helping support the housing market with the number of permits filed rising to a 4 year high. Even though housing starts dropped in July, they were still higher last month compared to January.
Aside from stronger than expected U.K. retail sales figures, the European session was extremely quiet. The euro started the North American session unchanged against the U.S. dollar and unfazed by a sharper decline in inflationary pressures. Eurozone consumer prices dropped 0.5 percent in July, marking the third consecutive month of lower prices. Accelerated budget cuts and increasing job losses in the region forced retailers to cut prices to attract demand. The ECB wonâ€™t be too worried however because on an annualized basis, CPI rose from 1.6% to 1.7%. Overall, muted inflationary pressures in Eurozone leaves room for further easing from the ECB.
The big story in Europe was the sharp increase in U.K. consumer consumption last month. Retail sales rose 0.3 percent in July and the icing on the cake was the sharp upward revision to the June numbers from 0.1% to 0.8%. While retail sales ex autos were flat, the market was looking for much weaker consumer spending numbers and for this reason Q2 GDP forecasts could be revised higher. Retail sales should continue to rise in August thanks to the improvement in the labor market and spending around the Olympics.