The dollar was narrowly lower against its rivals Wednesday as US stocks fell and crude oil prices rose. San Francisco Federal Reserve President Janet Yellen's comments diminished expectations for a Fed interestrate increase next week. Close to the 108-handle resistance for the fourth day, the USD/JPY interestingly has not been severely pressured by lower equity prices. The Canadian and Australian dollars rose on higher energy prices. The euro was supported by comments from European Central Bank executive board member J?rgen Stark who said inflation levels remain 'unacceptably high.'

The GBP/USD rose slightly following zigzag action the last few days. The Bank of England Monetary Policy Committee reinforced reports Wednesday that although UK inflation could rise to 4% later this year, the BOE is unlikely to raise interest rates given the weakness of the UK economy and the risk this would pose to financial markets. (The same could be said about the Fed.) The trend is down for the pair, but there is strong support at the 1.94-handle. If this is broken, the GBP/USD will fall dramatically.

Financial and Economic News and Comments

US & Canada

• Canada's leading indicator index advanced 0.2% m/m in May after coming in flat or negative for the previous three months, Statistics Canada reported.
  

• San Francisco Federal Reserve President Janet Yellen said the US economic slowdown may cast a 'shadow' on Asia. 'The resultant slowdown in the growth of economic activity in the United States and Europe could well cast a shadow on the prospects for Asian countries,' Yellen remarked at the bank's annual conference on Asian banking and finance. She also said 'while there have been glimmers of hope that strains in our markets may be easing, conditions are still not normal.'
• Top US companies' CEOs do not see a US recession now but they are growing more pessimistic about the US economic outlook. The CEO economic outlook index was 74.5 in Q2, down from 79.5 in Q1 and 81.9 in Q2 2007, according to the Business Roundtable's second-quarter survey.
• John Paulson, founder of the hedge fund company Paulson & Co., said global writedowns and losses from the credit crunch may reach $1.3 trillion, exceeding the IMF's $945 billion estimate.
  

Europe

• The UK CBI industrial trends increased in June against expectations. In June, 31% of the surveyed manufacturers reported order books as above normal, while 30% reported orders below normal, which gives a balance of 1%, a sharp improvement from -10% in May, the Confederation of British Industry reported.
• The Bank of England Monetary Policy Committee, led by BOE Governor Mervyn King, voted 8-1 to keep the benchmark interest rate at 5%, minutes of the June 5 decision showed today. David Blanchflower voted for a quarter-point reduction, arguing that there was a small, but growing risk of a 'very negative outcome.' UK consumer-price inflation reached 3.3% in May, prompting King to write a letter of explanation to the Chancellor of the Exchequer this week. 'Most members concluded that developments this month had meant that the risks to inflation in the medium term had moved further to the upside,' the minutes said. 'For some members the news had been sufficient to consider whether an immediate rise in bank rate was warranted.'
• BOE Governor King said: 'The Monetary Policy Committee is prepared to take whatever action is needed to return inflation to the 2 percent target and to keep expectations of inflation in the medium term anchored to the target.' 'We believe that a slowdown in the economy is necessary to dampen price and wage pressures,' he said.

Asia-Pacific

• The Bank of Japan is watching 'heightening' global inflation risks, minutes of the May 19-20 meeting released today showed. Japan faces 'considerable downside risks including uncertainty regarding future developments in overseas economies and global financial markets,' BOJ members agreed at their May 19-20 meeting. 'Inflation risks had been heightening worldwide given the high international commodity prices,' the minutes said.
• The Australian Westpac-Melbourne Institute leading index was at 2.8% in April, down from 3.3% in March, the Westpac-Melbourne Institute reported. The April number, well down on the index's long-term average of 3.8%, indicates Australia is in the midst of an economic slowdown, likely to last until at least the end of the year.

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