US Dollar
It was dollar strength yet again on the day as traders continued to pare back positioning in dollar shorts and higher unit labor costs confirmed the still looming pressures of inflation in theUS economy.  According to the US Labor Department, workers have been paid a higher level of compensation to offset the higher rate of productivity that has been witnessed in the quarter.  Nonfarm productivity rose 1.6 percent, in line with consensus figures and higher than the 1.1 percent witnessed in the previous period.  As a result, with a higher rate of business productivity, unit labor costs have risen, 4.9 percent, rising above the 4 percent forecasted by the market.  Increasing unit labor costs are suggestive that inflation may continue to persist in the worldâ�,��"�s largest economy, fueling higher rates of spending as consumers now have more disposable income on higher pay rates.  Granted, the figure doesnâ�,��"�t necessarily translate into an automatic decision by the Federal Reserve, but it will likely keep policy makers on their toes come year end.  Already signaling a potential end to the overall tightening scheme that has preoccupied the markets for the past two years, the central bank will likely keep this piece of information in reserve as they wait for further signals from upcoming economic data.  The market seems to have settled on the notion as futures contracts are pricing in a thin likelihood that rates will continue to rise before December.

Euro
Price action reflected some of the effects from lower PMI reports seen in the overnight as comments from Bundesbak President Weber sparked bullish speculation surrounding the Eurozoneâ�,��"�s currency.  According to the Purchasing Managerâ�,��"�s Index, manufacturing purchasing activity in most of regionâ�,��"�s major economies dipped in the month, with an exception in the Italian economy.  This forced the overall Eurozone Retail PMI to fall below the previous 53.8 print, lending to a slightly more bearish tone for the underlying currency.  However, offering some tepid optimism for the currencyâ�,��"�s future were comments by European Central Bank Council member Axel Weber.  Reiterating previously hawkish comments made by European Central Bank President Trichet, Weber was quoted as saying that â�,��"no decision has been taken to end the process of normalization at the end of the year.â�,�  The statement comes as the clearest signal thus far of the central bankâ�,��"�s intent to keep a watchful eye on inflationary pressures that are building in the current turnaround for the region.  The comments, coincidentally, matched up well with the German factory orders report for the month of July.  Rising 1.8 percent on the monthly comparison, the survey leaped off of the 0.8 percent rise seen in June to increase by 7.5 percent.  Adding to already building sentiment that the export market remains robust, the increasing factory orders report is likely to add to already posted revisions in economic growth for the zone.

British Pound
Economic data was pound positive on the day with traders witnessing a handful of key reports that, theoretically, should have lent some much needed strength to the British pound.  In the overnight, both industrial and manufacturing production surveys rose in line with consensus estimates, purporting further confirmation that the economy is indeed managing higher rates of demand.  The British Retail Consortium also revealed price increases at the fastest pace in more than two years on an annualized comparison in the month of August.  Rising 1.4 percent according to the BRC, shop prices accelerated past the 0.69 percent seen in July, reflecting higher buyer optimism and improved consumption efforts on the part of domestic citizens.  Coupled with the fact that the Bank of England is likely to reveal a further hawkish bias in light of no-rate change decision, the sterling should have gained some support in the New York session.  However, weighing on the currency today was a massive shake up in Prime Minister Tony Blairâ�,��"�s cabinet.  Seven members of the PMâ�,��"�s cabinet, considered junior officials, had decided to hand in personal resignations in conjunction with an earlier signed letter.  Although reaffirming allegiance to what Blair had done in regards to the partyâ�,��"�s direction during his tenure, the letter stipulated a need for his resignation as he was no longer the right man to continue on.  As with other political situations of this nature, the market took the upheaval as damaging to the overall economy, adding bearish undertones to the currency.

Japanese Yen
With no Japanese economic data on tap for the day, traders pared back positioning in the yen strength that has unfolded over the past three sessions ahead of the upcoming Bank of Japan monetary meeting.  Although expected to keep rates at the current 0.25 percent standing, the market is well aware of hawkish rhetoric that may be following right behind the already priced in decision.  Purporting the sentiment seems to be sustained levels of inflation in the economy through consumer price inflation.   However, the overall sentiment may not be considering the fact that consumers remain hesitant to spend in the economy.  Looking back on the past couple of surveys involving retail sales suggestions, the notion couldnâ�,��"�t be more confirmed.  According to the latest round of department and same store sales figures, department sales have dipped for the past four consecutive months while overall retail trade has declined five out of the past six months.  As a result, some may consider that current inflationary pressures may be a simple product of bolstered commodity demand.  Subsequently, should overall commodity demand abate, central bankers may not have enough evidence for further rate tightening in the near term.  Until consumers actually return to the stores, the awaited rate hike decision may well be a ways off until evidence of supported growth can be obtained. 

Kathy Lien is the Chief Currency Strategist at FXCM.