• US dollar pares losses versus yen after U.S. data
  • Sterling stays weak versus USD and euro
  • Commodity currencies drag lower versus USD


USD- The US dollar is stronger against most major currencies with the exception of the JPY, as US producer prices fell, signifying minimal inflation pressures in the US economy. The Labor Department reported its seasonally adjusted producer price index slipped 0.2% in December, for the third straight month as food prices declined by the most in over 1 1/2 years. Lower producer prices should allow the Federal Reserve to stay on its very easy monetary policy path to nurse the recovery. In addition, US retail sales rose in December as Americans set aside the threat of higher taxes and bought automobiles and a range of other goods, suggesting momentum in consumer spending as the year ended. The Commerce Department reported retail sales increased 0.5% after rising 0.4% in November and sales rose 5.2% for the whole 2012, offering favorable signs of resilience in the face of then fiscal cliff debates.


EUR- The euro climbed to an 11-month high versus the US dollar and was broadly supported against major European currencies as investors pared expectations of monetary easing from the European Central Bank and the outlook improved for Spain, the region's fourth largest economy.

The single currency also extended gains against the yen, touching its highest level since May 2011, as Japan's government applied more pressure on its central bank to ease monetary policy, contrasting sharply with the ECB's stance.


GBP- Sterling slightly weakened against the US dollar and edged away from a 9-1/2 month low against the euro as investors took profit on the euro's recent gains but remained vulnerable to selling on concerns about a fragile British economy. Data showed UK annual CPI inflation remained at 2.7 percent in December, in line with expectations and staying well above the Bank of England's 2.0 percent target. Analysts said there were concerns high inflation could hurt an already weak economy by reducing consumers' spending power.


JPY- The Japanese yen gained against the US dollar, rebounding from four straight days of losses that pushed the currency to a 2-1/2 year low. The sudden climb in the JPY took place after a Japanese minister warned about the disadvantages of excessive yen weakness, which prompted investors to shed bearish bets. After gaining an impressive 2.3% since the start of the year, many believe the dollar was firmly poised for profit taking, but its fall should be temporary given widespread expectations of aggressive monetary easing by the BoJ.


Commodity Currencies- The Australian and New Zealand dollars weakened against the US dollar and were caught in choppy trade against the yen as a warning against excessive yen weakness by Japanese Economics Minister Akira Amari gave markets an excuse to trim large short yen positions. The kiwi eased to $0.8405, having initially risen to $0.8430 after a surprise jump in New Zealand business confidence. The NZIER survey indicates that the economy in Q4 got back on a positive track after weakness in Q3. The Canadian dollar trimmed its losses against the US dollar after data showed U.S. retail sales rose more than expected in December. The Canadian currency had fallen earlier after Canadian existing home sales declined 0.5 percent in December from the previous month.

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