• Mixed Dollar Action On Better Than Expected Payrolls Data
• Specter of Inflation Looms As Euro Indicators Rise
• Preliminary Readings On Japanese Diffusion Look Rosy

US Dollar
Lots of economic data on the day with an increasing focus on unemployment figures and one release including wholesale inventories.  Adding to the generally bullish sentiment of late, wholesale inventories rose 0.5 percent versus a 0.4 percent consensus figure.  In this environment, although a lower figure is preferred, the rise may be attributed to larger estimated demand.  Notably on the general figure, petroleum inventories jumped 5.1 percent higher in the  month.  With that said, traders were mainly focused on today's non-farm payrolls figure, with most estimates calling for a considerable drop in employment figures throughout the Louisiana and Mississippi regions.  Estimated to drop 150,000 large, the actual figure was released to the surprise tone of a minor 35,000 claim dip.  Suggestive that the economy remains strong in the aftermath of the storms, economists and market participants are now pointing to the validity of the report.  Subsequently, many are questioning whether the results were actually comprehensive or failed to include the realistic figure of the unemployed in the region.  Additional questions are also speculating on whether a worse figure will be presented next month if such a discrepancy exists.  Nonetheless, the figure still bears a bullish aura with the previous figure being revised higher to 211,000 from the previous 169,000, in addition to the 12 month job growth trend rising to just below 195,000.  With continued strength on the employment side of the economy, greenback muscle looks to continue in the near term.

Euro
European economic data was rather mixed on the day, with little to add to the inflationary comments made by European Central Bank President Jean Claude Trichet yesterday.  For the month of August, leading indicators, issued by the Organization for Economic Co-operation and Development, actually ticked up in the euro zone.  Although based on some considerably positive, albeit thin, reports for the region, officials saw further expansion on growing exports in the economy supported by a depreciated single currency.  However, the specter of higher oil prices still looms over global demand and may ultimately crimp consumption interest if they persist above the already 40 percent rise experienced this year.  Additionally on the docket, German industrial production declined on the monthly comparison.  Expected to dip 0.5 percent, the figure actually fell 1.6 percent and totally reversed the rise in the previous month.  Declining for the first month in three, this now places the overall annualized figure below the 3.2 percent seen last month as higher oil prices suppressed demand.  Although construed as being pessimistic, economic prospects still remain rather mixed as business confidence and manufacturing activity remain lofty in light of dampened consumer demand and lower output figures.  With that said, looking into the future, the region may very well have to consider the possibility of rising interest rates along with the aforementioned placing further pressure on an economy already teetering on the notion of a recession.

British Pound
With no economic news for the day, traders pared back positioning in the British pound almost retracing all of the gains witnessed in the past three sessions on a continuance of positive U.S. economic data.  Further weighing on pound sterling, interest rate cut considerations seem to be disseminating even after yesterday's “no-action” decision.  Remaining strong on their stance against currently high inflationary pressures, Bank of England policy makers may ultimately give way if no improvements, even incrementally, occur domestically on the part of consumers as price increases look to be merely boosted by higher crude and energy prices.  Traders seem to agree with the notion as short sterling futures are pricing in a probable rate cut in the near term, even as early as December of this year.

Japanese Yen
According to the Ministry of Internal Affairs and Communications, household spending declined for the fifth straight month in August.  Mildly suggestive that consumers remain hesitant in the world's second largest economy, the results had been expected and ultimately confirmed  previous data reported by the ministry last week.  According to last week's report, spending by salaried households fell 1.3 percent on an annualized comparison.  Although this may place a damper on the recent spate of optimism in the economy, the monthly overall figure rose 4.8 percent compared to consensus estimates of a 3.7 percent climb.  This ultimately suggests that retail sales, although still in an overall decline, have been decreasing at a smaller rate.  As a result, nasent speculation has been sparked that a near term reversal in consumer demand may be on its way in the near term.  Adding to the aforementioned upbeat notion, the economy's leading economic and coincident indexes rose higher than previously printed.  Released in line with consensus estimates, the figures are reflective of both the current and future expectations taking into account consumer sentiment and employment prospects.  However, with Tokyo share prices also a factor, the preliminary figure may be overrepresentative as Nikkei shares have skyrocketed in the past month.

Kathy Lien is the Chief Currency Strategist at FXCM.