• The dollar, while rising against the Canadian dollar, fell versus other major currencies on Thursday. The dollar index declined for the sixth time in eight days to 85.68, approaching the important 85-area support. US economic figures were weak. Jobless claims increased, Philadelphia-area manufacturing growth slowed, and consumer-price inflation remains tame. The S&P 500 increased a modest 1.43 to 1,116.04. The yen rose. Japan’s LEI declined for the first time in 14 months. The euro was supported by an oversubscribed Spanish government debt auction. Sterling tested the 1.48-area resistance for a fourth day. UK retail sales rose more than expected. An unexpected decline in Canadian wholesale sales pressured the Canadian dollar. The Australian dollar advanced for the sixth time in eight days.

• The USD/CHF plunged after the Swiss National Bank softened its stance on its commitment to intervene to hamper a Swiss franc appreciation. The SNB in its quarterly statement said it would “take all measures necessary to ensure price stability” if deflationary risks increase. However, the bank removed its earlier threat that the SNB was prepared to “act decisively to prevent an excessive appreciation of the Swiss franc against the euro.” The USD/CHF has established a short-term downtrend since making a high in early-June. The long-term uptrend remains intact and the pair is oversold. Having been long since 1.0340, we took profits after reaching our stop today.

Financial and Economic News and Comments

US & Canada

• US consumer prices fell for a second month in May, falling 0.2% m/m, after a 0.1% m/m April decline, according to CPI data from the Labor Department, suggesting US consumer-price inflation remains well contained. The consumer-price inflation rate slowed to 2.0% y/y from April’s 2.2% y/y. The May month-on-month CPI fall was led by a 2.9% m/m decrease in energy prices. Gasoline costs fell 5.2% m/m, the largest decline since December 2008. Food prices were unchanged. The core CPI, which excludes food and energy, increased 0.1% m/m in May after 0.0% m/m in April. The core CPI was up 0.9% y/y in May and April, the smallest year-on-year increase since January 1966. The numbers matched the forecasts. Meanwhile, real average hourly earnings increased 0.5% m/m in May but declined 0.1% y/y, while real weekly earnings rose 0.8% m/m and 1.1% y/y in May, according to a separate report from the Labor Department.

• The Conference Board US leading economic indicators index, a measure of future economic activity, advanced 0.4% m/m to 109.9 in May, the 13th gain in 14 months, after an upwardly revised 0.0% m/m in April and an upwardly revised 1.4% m/m rise in March, LEI data from the Conference Board showed, pointing to continued, albeit slower, US economic growth in H2 2010 (see our Globicus- qEcon Research LEI in the June 7 report). The coincident index, measuring current economic activity, increased 0.4% m/m to 101.3 in May, following upwardly revised gains of 0.4% m/m in April and 0.3% m/m in March.
• US initial jobless claims in the week ending June 12 unexpectedly rose 12,000 to 472,000, a one-month high, from the previous week’s upwardly revised 460,000, according to figures from the Labor Department. The 4-week moving average declined 500 to 463,500. Continuing claims in the week ending June 5 rose 88,000 to 4,571,000 from the preceding week’s upwardly revised 4,483,000. The 4-week moving average of those continuing claims fell 21,250 to 4,601,500. The insured unemployment rate for the week ending June 5 increased to 3.6% from the prior week’s 3.5%.
• The US current-account deficit widened less than expected to $109.0 billion in Q1 2010, a third successive quarterly increase, from a revised $100.9 billion shortfall in Q4 2009, data from the Commerce Department showed. The current-account balance as a percentage of GDP was -3.3% in Q1, compared with -3.1% in Q4.
• The Philadelphia Fed manufacturing index dropped to a lower-than-anticipated 8.0 in June from 21.4 in May, indicating Philadelphia-area manufacturing expanded at the slowest pace in 10 months, according to the Federal Reserve Bank of Philadelphia’s June 2010 business outlook survey. The employment index fell to -1.5 in June from 3.2 last month, showing employment contracted for the first time in seven months. The shipments index declined to 14.2 from May’s 15.8, indicating shipments grew at a slower pace. However, new orders expanded at a faster rate in June, with the new orders index increasing to 9.0 from May’s 6.1.
• Canada’s wholesale sales unexpectedly decreased 0.3% m/m to C$44.0 billion ($42.8 billion) in April after a downwardly revised 1.2% m/m increase in March, figures from Statistics Canada showed. April wholesale sales rose 9.7% y/y.

Europe

• Eurozone seasonally adjusted construction output slipped 0.3% m/m in April, the third decline in four months, after a downwardly revised 6.5% m/m gain in March, Eurostat reported. April construction output fell 6.1% y/y wda, the 26th straight year-on-year fall, following a revised 6.0% y/y March decrease.
• The seasonally adjusted volume of UK retail sales grew a more-than-expected 0.6% m/m in May, the third gain in four months, after a downwardly revised 0.0% m/m in April, according to data from the Office for National Statistics. The retail-sale volume rose 2.2% y/y, following April’s downwardly revised 1.3% y/y rise. Excluding automotive fuel, the seasonally adjusted retail-sale volume was up 0.5% m/m and 3.4% y/y in May.

• “Overall demand for UK manufactured goods weakened a little in June, after a significant improvement in May, but total order book levels are still close to their long-term average,” the Confederation of British Industry said in its latest monthly industrial trends survey, which showed a resulting balance of -23% in June versus -18% in May.
• The Swiss National Bank maintained its key interest rate at 0.25%, as forecast.

Asia-Pacific

• The Japanese leading economic indicators index, a measure of future economic activity, slipped to an unrevised 101.7 in April, the first decline in 14 months, from 101.9 in March, final April LEI data from the Cabinet Office showed. The coincident index, measuring current economic activity, rose to 101.3 (vs. preliminarily reported 101.6), a 13th straight monthly rise, from March’s 100.5

FX Strategy Update