FX News And Analysis

The dollar weakened on Monday after worse-than-expected retail sales data showed a slowdown in private sector consumption, which is considered a major driver of growth. The data increased speculation of the Fed introducing more quantitative easing (QE), which weighed on the outlook for the greenback. Advance Retail Sales in June fell by -0.5% versus the 0.2% rise expected, lower than the -0.2% of the previous period, and the third consecutive month the metric declined. Retail Sales less Autos also fell by -0.4%, which was the same as the previous month but not as high as the 0.0% consensus estimate. Empire Manufacturing in July rose by 7.39 when it had been at 2.29 previously and had been expected to rise to 4. Overall the data will probably lead to more careful scrutiny of Fed Chairman Ben Bernanke's testimony to Congress later this week for early-warning signs of a change in monetary policy from the current 'wait-and-see' stance.

EUR
The single currency continued to fall on Monday after news of a further eight-week delay in the German constitutional court's decision on the ESM -- the latest bailout fund that will take over from the European Financial Stability Fund. There was further pressure after reports from the ECB that senior bondholders of Spain's leading banks might have to take losses as part of Spain's bank bailout. On the data front, the main event was the release of the euro zone's CPI, which remained the same in June at 2.4%, in line with expectations. Euro zone CPI Core also remained the same at 1.6%, which was also the same as consensus estimates. Month-on-month, however, CPI eased by 0.1% when it had been expected to rise to 0.0%. The euro zone Trade Balance showed a welcome increase in the surplus, which rose to 6.9bn in May from 3.7bn previous when a more modest rise to 4bn had been anticipated. Meanwhile, seasonally adjusted figures remained robust, too, with a surplus of 6.3bn vs 5bn expected and 4.5bn previous.

GBP
The pound rose against the dollar and euro on Monday after the dollar was hit by worse-than-expected retail sales data showing three months of back-to-back contraction. The euro also weakened against the pound amid concerns over bailout conditions for Spain and Italy following reports that the ECB could impose losses on senior bondholders of some of the worst hit Spanish banks. The pound managed to shrug off negative reports from the IMF, which slashed U.K. growth forecasts more than any other leading economy in 2012/13, reducing them by 0.6% - to 0.2% and 1.4% respectively, as the AAA rating of U.K. gilts continued to be a draw for safe-haven investors. On the data front, Monday saw the release of housing data from Rightmove. In July house prices rose by 2.3% yoy versus 2.4% in 2011 and by -1.7% mom vs 1.0% previous.

JPY
The yen rose on Monday after the dollar was hit by a negative Retail Sales print in June, which showed a fall of -0.5% when a 2% rise had been expected. The yen also benefited from increased safe-haven demand after a rise in contagion fears in the euro zone sparked by concerns that senior bond holders of major Spanish banks would have to take losses as part of the bailout deal. There was no data out for Japan on Monday although Tuesday sees the release of the June BoJ monthly meeting minutes, which could influence the outlook for monetary policy, as expectations for more QE remain high. On Wednesday there is Machine Tool Orders for June and on Thursday, the All Industry Activity Index and Leading Index are scheduled for release.