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The first round of U.S. data this morning has not failed to extend the gains in the dollar.  Personal income and personal spending growth along with the PCE deflator all fell short of expectations.  Incomes rose 0.4 percent last month while spending rose 0.5 percent. Although consumers are out shopping for the holidays, they are primarily taking advantage of discounts by retailers.  However the faster growth of spending over income suggests consumers are becoming more liberal about emptying their pocketbooks.  Yet we remain skeptical about whether this pick in spending will last after the holidays.  The second round of U.S. economic reports will be released at 10am NY Time with new home sales and the final December University of Michigan consumer sentiment report due for release.

Canadian Growth Slows in October

Meanwhile the Canadian dollar gave back its earlier gains after the monthly GDP report indicated that growth slowed in October.  The economy expanded by 0.2 percent after growing by 0.4 percent the previous month.  Demand for real estate, energy, retail and wholesale products increased while manufacturing sector demand was flat.  

BoE Minutes - Unanimous Vote

Earlier this morning the minutes from the December monetary policy meeting revealed that Bank of England members voted unanimously to keep the size of their Quantitative Easing program unchanged. Although the pound managed to maintain its gains following the report, it has failed to strengthen against the U.S. dollar or any other major currency for that matter as traders realize that the U.K. economy is the weakest of them all.  

The Bank of England is the only central bank that is seriously considering additional quantitative easing and the U.K. economy remains the only major country still in recession.  At the same time, it is important to realize that primary the reason why the Monetary Policy Committee did not increase the program is because the economic and inflation outlook has not changed since November.  The minutes revealed the central bank's concern about money growth, the outlook for the labor market and the shock that a sovereign downgrade would have on the economy.  Central bank officials were also surprised by the weakness of export growth considering that the sterling has weakened and world trade is recovering.  On a more positive note, consumption and business investment was stronger than expected which may help to boost GDP in Q4. We expect the Bank of England to stand pat again in January as they wait for more data before deciding what changes to make, if any in February.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.