Aside from US economic figures, the US dollar (and the risk taking environment for that matter) was boosted by positive statements from both Fed Chairman Ben Bernanke and US President George W. Bush early in the New York morning. Although not citing full-blown bailouts, both figures pretty much solidified the likelihood that central agencies will be there in the event that a financial catastrophe occurs. Releasing statements from the annual symposium in Jackson Hole, Wyoming, Bernanke stated that the central bank “continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy.” In addition, the Federal Reserve will, as in previous occasions in history stand “ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets.” Comparatively, President Bush noted that the administration, while pledging to safeguard those who have fallen behind on payments, will reject any and all bailouts to “speculators” in the sector. This means more liquidity dealt to lower and middle income borrowers, stemming from the Federal Housing Administration. Not surprisingly, both sets of comments were all that the market needed in climbing over 100 points to finish higher on the day. But still, some are questioning whether this is the end to the subprime disaster as plenty in the market await repricing of ARMs in the next couple of months, let alone any hedge fund still planning on closing their doors and attributing it to massive losses in asset backed investments. All in all, we may not have seen the last of it as we set in for end of the year action.

Euro: Economic Data Points Supported Growth
With most of the attention on the session being focused on US announcements surrounding subprime concerns, Eurozone economic data fell to the wayside. Granted, there wasn’t much to go on. However, what was reported gave a little more hope as to further expansion in the economic region. For one, unemployment remained relatively still, keeping in time with the previous figure of 6.9 percent. Economic confidence and business climate were also positive for Euro growth and underlying currency appreciation. For the month of August, business assessments were higher at a 1.41 print compared to the previous 1.35. The figure complimented the economic confidence report, which showed stabilization in the region. However, one report did lend some bearish undertones, which would have minimized any gains purported by the previous two indications in normal market conditions. According to statistics agency, German retail sales figures were far less than expected. Rising by only 0.3 percent in the monthly comparison, the figure actually fell further by 1.5 percent on the year. This means that although economic conditions may be improving, the overall propensity for people to spend just isn’t there. Although perceived as somewhat trivial now, it should be interesting to see if this could be the start of something slower for the region in the near term.

British Pound: Consumer Confidence Remains High
Surprising the market, consumer confidence remained relatively positive for the month of August, keeping the prospects for pound appreciation good for the moment. Expected to dip to a negative 7 reading, the report according to the GfK Group, actually improved to a negative 4 print. The figure was especially positive when considering the myriad of negative situations that have emerged over the past month for the economy. Aside from declining stock market valuations, the UK has been hit by strong floods and a bout of foot and mouth disease. However, both situations weren’t able to dampen the spirits of the British spender as it seems that current economic assessments remain positive on rising wages and strong employment. The pound bullish sentiment should continue into next week as investors look to the possibility of another round of monetary tightening by the Bank of England when they issue their decision in midweek action.

Bank of Japan Still Grappling with Deflation, Risk-Seeking Likely to Take Yen Lower
The Japanese yen has appreciated quite a bit over the past two months, as risk aversion has pervaded the forex markets and led carry trades to unwind. However, after a choppy day of trading in the yen crosses, it appears that Fed Chairman Ben Bernanke has somewhat assured investors that he will support the markets in times of distress, which has left the low-yielding currency down slightly from Thursday’s New York close. Starting out next week, Japanese capital spending is anticipated to remain strong, but show a slowdown from the quarter prior, while wage growth is predicted to soften further, which will not bode well for consumer spending. With two drivers of economic growth – business investment and consumption – showing diminishing power, the picture does not look good for Japan. Furthermore, the most recent inflation report showed that the Bank of Japan is still grappling with persistent deflation. The combination of dour economic outlooks and tepid price growth along with continued risk seeking by investors could lead to more steady gains for carry trades and equities next week.

Widely a Nonstarter, Both CAD and AUD Data Gain
In similar fashion to most economic data slated for the day, positive Canadian and Australian figures were widely pushed aside for a dollar dominated day. Uplifting for the Canadian dollar was a better than expected growth figure for the second quarter as GDP rose 3.4 percent. Although lower than the previous quarter’s assessment, the release was far better than the 2.8 percent expected by the market. Separately, in Australia, retail sales figures remained positive for the month. In July, consumer receipts advanced by 0.9 percent, above the consensus figure of 0.6 percent. The positive data was coupled with a narrower than expected trade balance for the month, which would have otherwise supported a skyrocketing AUD. However, given the risk averse environment, both currencies weren’t able to garner much on the day.

Kathy Lien is the Chief Currency Strategist at FXCM.