The dollar was higher versus the yen on increased risk appetite on Wednesday but little changed against most of the other major currencies after US consumer price inflation rose slightly less than expected. Sterling was pressured after the Bank of England signaled a period of stagflation for the UK economy, but the 1.94 GBP/USD support held. The likely impact of smaller interest-rate cuts due to higher inflation balance the weaker growth prospect for the UK economy. The Australian dollar fell for a second day after a government report showed wage growth unexpectedly slowed in Q1 2008, raising concern economic growth is easing. Having failed to penetrate resistance on several attempts, the AUD/USD is testing its support from the short-term uptrend
The USD/JPY gained on rising equity prices and deteriorating Japanese economic fundamentals as exports slowed and inflation rose. The pair is likely to test the important 106-area resistance. Strongly correlated with the US equity market, the pair was pressured by last week's stock market consolidation. Equities are moving higher, possibly continuing its rally; thus, making the USD/JPY likely to penetrate its resistance. If that occurs, the pair will move significantly higher
Financial and Economic News and Comments
US & Canada
US consumer price inflation in April rose a less-than-expected 0.2% m/m and 3.9% y/y and the core CPI rose 0.1% m/m and 2.3% y/y, the Labor Department reported. April consumer price inflation moderated somewhat, but it will not last unless the US economy contracts more than expected. Overall April CPI showed the energy price unchanged compared to March despite a large increase in the oil price. In addition, the recent negative real Fed funds rate is likely to show up with a lag of 18-24 months, implying inflation remains a persistent problem to the US economy
US foreclosure filings rose 65% and bank seizures more than doubled in April from a year earlier, RealtyTrac said. More than 243,300 properties were in some stage of foreclosure, the highest monthly total since RealtyTrac data began in January 2005. One in every 519 households received a filing and Nevada, California and Florida had the highest rates.
Europe
The Bank of England’s quarterly Inflation Report showed UK inflation will rise above the key 3% threshold in the near-term and likely remain there throughout 2008, with a significant chance of spiking above 4%. At the same time the UK economy will slow even more markedly than it had forecast in February.
BOE Governor Mervyn King warned that the UK economy may experience an 'odd quarter or two' of negative growth, but that he will likely have 'plenty of opportunities to write letters' to Chancellor of the Exchequer to explain why inflation is running so far above the 2.0% inflation target. The Monetary Policy Committee is facing its most difficult challenge yet but monetary policy 'must focus on bringing inflation back to the target in the medium term,' King said.
UK average earnings including bonuses rose 4.0% y/y in March, the Office for National Statistics said. UK jobless claimants rose 7,200 in April following an upwardly revised 3,600 increase in March (compared with the March previous estimate of a 1,200 decline).
European industrial production fell 0.2% m/m in March and was up 2.0% y/y, Eurostat reported. Production of energy increased 2.7% m/m. However, most other sectors showed declines in March. Intermediate goods fell 0.2% m/m, non-durable consumer goods fell 0.5% m/m, capital goods dropped 1.1% m/m and durable consumer goods decreased 1.5% m/m, indicating softness in European industrial production.
Asia-Pacific
Japan’s current account surplus fell 12.3% y/y to ?2.9 trillion ($27.8 billion) in March as imports grew faster on surging energy prices and exports growth stalled as the US economy slowed, the Finance Ministry said. Exports rose 2.8% to ?7.4 trillion ($71 billion) in March, while imports rose 13.2% to ?6.1 trillion ($59 billion). The trade surplus fell to ?1.3 trillion ($12.1 billion) in March, down 29% y/y.
Japan’s corporate goods prices rose a stronger-than-expected 0.6% m/m and 3.7% y/y in April, lifted by a surge in oil and steel costs, the Bank of Japan said. Petroleum and coal products costs jumped 19.6% y/y, while steel prices rose 15.6% y/y. Costs of processed food increased 3.9% y/y.
China’s industrial production expanded at a slower pace in April as export growth cooled on weaker US demand. Output rose a less-than-expected 15.7% y/y in April after gaining 17.8% y/y in March, the statistics bureau said. The slowing is unlikely to ease government concern that China’s economy risks overheating.
Australia’s wage cost index rose a less-than-expeceted 0.9% q/q and 4.1% y/y in Q1 2008 after rising 1.1% q/q and 4.2% y/y in Q4 2007, the Australian Bureau of Statistics said.
Disclaimer: All information on this web site is subject to change. The use of this web site constitutes acceptance
of our user agreement. All publisher financial articles at
FXtree.com are those of the individual authors and do not represent trading recommendations
of FXtree.com or its staff.
