• Dollar Weakens on Disappointing US Data and Political Uncertainty
• Encouraging Data Helps to Send Euro Higher
• Yen Traders Shrug Off Weaker Consumer Spending Data

US Dollar
The dollar is weaker against the majors today giving up a good deal of strength on disappointing durable goods data released this morning.  Durable goods orders in September, expected to drop by 1.5 percent, actually dropped 2.1 percent after rising 2.8 percent in August.  Excluding transportation, durables were expected to grow 0.8 percent but in fact dropped 1 percent.  These numbers suggest the economy slowed at the end of the third quarter as Hurricane Katrina boosted oil prices and dampened corporate confidence.  Capital spending is still hesitant as sales of business equipment during the month fell.  This decrease in orders however may be temporary as companies begin to rebuild inventories and restoration efforts in the Gulf Coast spur demand.  Economists believe that September was a temporary fall off and there is still strength under the economy, however the numbers did cause some economists to cut their forecasts of third-quarter economic growth.  Also released were initial jobless claims from October 22 coming in at 328,000, less than the expected 340,000. Claims from the Gulf Coast continue to fall off more quickly than expected with the bulk of workers already having filed.  Help wanted ads also crept up in September with the index rising from 38 to 39, up from 36 in September 2004.  The increase is partially due to a reaction to displaced workers from the hurricanes looking for work.  The last release today was new home sales for September.  Sales rose 2.1 percent during the month coming off the second-lowest level of the year to $1.222 million, up from $1.197 million in August.  The numbers put new homes sales on track to hit a record this year; however with rising mortgage prices, purchasing may slow.  So far, the rising rates have not discouraged home buys, good news for the Fed.  Tomorrow, not only are we due to receive the final GDP numbers for the third quarter, but also possible indictments related to the CIA leak probe. 

Euro
After yesterday's setback, the Euro managed to gain strength against the dollar once again by taking advantage of positive EU data and weaker US data.  German GfK consumer confidence was released this morning at a 5 month high in October after oil prices eased away from record highs during the month and as the two parties involved in the grand coalition begin talks to ease the political tension in the country.  The index, based on a survey of about 2000 people, aims to forecast household spending a month in advance and climbed to 3.4 points, up 0.3 points from September.  This rise further indicates that growth across the Euro-zone is finally picking up making a rate hike by the ECB even more likely in the near future.  Also positive, in France, the quarterly manufacturing survey was released improving in all fronts.  Demand is looking to have risen in October as well as capacity utilization.  This makes two months of positive data stemming from French manufacturing, again signaling a possible recovery.  French unemployment unexpectedly fell slightly in September to 9.8 percent from 9.9 percent.  This is the lowest level so far this year as a new burst of temporary contracts and government financial aide in certain sectors help to create jobs.  France has been plagued by high unemployment and a fall is certainly welcome, however due to the temporary nature of the jobs available, this drop may not continue or even be sustained.  Current account deficit for the entire Euro-zone was also announced this morning, shrinking to 13.3 billion in the second quarter, after posting 15.1 billion last quarter.  Part of this was due to the strengthening of the Euro boosting export prices.

British Pound
The British pound is stronger against the dollar today thanks to one very positive economic release.  The British Bankers' Association's UK mortgage lending figures showed a strong upturn in refinancing during September helping to push mortgage lending up to a 14 month high.  Gross mortgage lending for the month was at 17.8 billion sterling, up 6 percent from August's 16.8 billion.  This rise may also be due to a delayed increase in demand for lending usually seen in the late summer.  A rise in lending for two months in a row now affirms speculation that the UK housing market is finally heading into a recovery after seeing a 12 month slump.  In turn, this gives the Bank of England further reason to decide to keep interest rates unchanged at its next meetings.  The housing market has been one of the more troubling slumps in the UK economy.  As it begins to pick up, hopefully this is sign of recovery for the entire country therefore relieving the pressure for another rate drop to stimulate the growth.

Japanese Yen
Despite weak data coming out of Japan, the yen has gained against the dollar today as traders focus on weaker US data this morning.  Large retail sales in September which were expected to have dropped by 1.8 percent fell more than double that by 2.7 percent.  Retail trade seasonally adjusted from August to September fell by 0.8 percent as opposed to an expected rise of 0.2 percent.  From September 2004, retail trade only grew 0.1 percent, disappointing expectations of 1.5 percent growth. Consumer spending, accounting for more than half of the country's economy, has recently relied on the Japanese government to boost economic growth as households begin to spend their recent higher wages.  However, during September, consumers spent less on household goods and clothing as consumer spending slowed after sustaining its highest levels in more than a decade in the first half of the year.  Economists realize that the record pace of spending in the beginning of the year may have been too fast and now will have to slow, probably remaining flat for the rest of the year.  High energy prices, peaking during September, are also beginning to take a toll even on Japan's strong consumers.  The Japanese government during the month made a move that shook consumers as well, doing away with income tax rebates over two years starting in January 2006.   Japan's small business confidence index for October also showed a drop from last month's 50.4 to 50.0 this month. 

Kathy Lien is the Chief Currency Strategist at FXCM.