US Dollar
US growth figures for the second quarter were revised lower, but this is hardly surprising given the recent trend of economic data.  Weaker residential investment growth played a major role in the downward revision which suggests that housing could continue to drag the economy lower in the third quarter.  The market has become accustomed to signs of slower growth and as such, there has been minimal reaction in the currency market.  Aside from GDP, the number of help wanted ads also fell to a 45 year low in the month of August which is not an inconsequential milestone.  This is very negative ahead of next weekââ,¬â"¢s non-farm payrolls release.  Analysts are currently forecasting just slightly lower job growth compared to the previous month, but given the drop in the help wanted index, it is more likely that we will see an even weaker reading.  At least the housing market and real estate sector will no longer need as many real estate agents, brokers, contractors, and other construction related jobs.  However, the US dollar has held on strong.  With the Dow just a few points away from hitting an all-time high, the rally may be too attractive for foreign investors to ignore, even if everyone is telling them that the outlook for the US economy is grim.  Couple that with 5.25 percent interest rates and we can understand why the US dollar has not buckled down yet.  Demand for Treasury auctions have been very strong lately, which suggests that the sharp drop in foreign purchases of US securities reported earlier this month may be just a one month anomaly. Positioning continues to be very cautious at the moment as the market waits for a cue to take the dollar out of its ranges. 

Euro
Even though the Euro ends the day unchanged against the US dollar, the true fundamentals of the Eurozone is reflected in the single currencyââ,¬â"¢s rally against the Japanese Yen, British pound and Swiss Franc.  As we mentioned yesterday, when things are dull, we turn to currency crosses for more excitement.  Both German unemployment and French GDP came out stronger than expected for the month of September.  The data indicates that many Germans who acquired jobs during the World Cup have not been laid off.  This is very encouraging and could fuel further spending before the VAT tax increase at the end of the year.  Over in the France, even though we are happy to see that French GDP was bumped up to 1.2 percent from 1.1 percent in the second quarter, we were not as ecstatic about the countryââ,¬â"¢s 9k increase in unemployment in the month of August.  Originally expected to drop for the seventh consecutive month, unemployment actually increased.  However despite the weaker employment number, recent Eurozone data still supports another interest rate hike by the central bank.  The question is only whether we should expect one or two more before the end of the year.  Tomorrowââ,¬â"¢s economic data could tilt the scales as we are expecting German retail sales, along with consumer confidence and CPI numbers from the Eurozone and France. 

British Pound
The British pound was the dayââ,¬â"¢s biggest market mover as it lost over 150 pips against the dollar and 55 pips against the Euro.  Fifty pips in EUR/GBP is huge, especially since it comes after a 30 pip rise the prior day.  The currency collapsed against everything in sight after the Office for National Statistics announced that there was a drastic error in its calculation of annual inflation in export prices. The estimate was slashed to 0.6% from 3.8%, and subsequently pushed the ONS estimate of overall inflation in the UK down from 3.4% to 2.2%. Additionally, annual nominal GDP was revised down to 4.8% from 6.0%.  Given that recent economic data was already calling for no rate changes by the Bank of England for the remainder of the year, this latest admission should squash the hopes of any wishful thinkers.  Stripping the central bank of any worries about inflation, they can sit back, relax and enjoy the fall weather.  The housing market continues to stabilize as indicated by the up tick in house prices, which means their attempt to engineer a soft landing in housing was a big success.  Looking ahead, we are expecting more housing market releases tomorrow along with consumer confidence.  Both are expected to show improvements, which could help the pound recuperate some of its recent losses. 

Japanese Yen
Yesterday, Japanââ,¬â"¢s new finance minister Omi said that he was not worried about the value of EUR/JPY, yet today his vice finance minister Fujii called the recent moves in EUR/JPY a bit rough.  Perhaps he was clarifying his bossââ,¬â"¢ words as Hideto Fujii has a bit more experience having been vice finance minister since July when he was appointed as part of a cabinet reshuffling.  With EUR/JPY headed back towards its all-time highs, we expect to hear more verbal intervention from the Japanese government or else they will face the wrath of other G7 finance ministers.  Physical intervention is unlikely since Japan benefits greatly from the weak yen.  Not only does it help to boost exports, but it also helps to encourage more domestic spending, which Japan really needs.  However if Japanese government officials finally agree and sing the same tune on the Yen by collectively expressing their discontent with its weakness, we could finally see the pair top out.

Kathy Lien is the Chief Currency Strategist at FXCM.