The dollar fell versus its counterparts on Wednesday as risk appetite increased. US industrial production continued its gain in another sign the US economy is recovering. The S&P 500 jumped 16.13 points to 1,068.76. Continuing its negative correlation with the stock market, the dollar index fell to 76.29, just above the vital 76-handle support. The yen rose, supported by Japan's newly appointed Finance Minister Hirohisa Fujii who sees advantages of a strong yen and disfavors intervention in currency market. Sterling gained against the dollar but fell versus the euro as UK unemployment reached the highest level since 1995. The Australian dollar climbed to a 1-year high as Australia's LEI increased. The Canadian dollar advanced on rising energy and metal prices. The Swiss franc was supported by a surge in Switzerland's investment sentiment. The Bank of Japan is expected to leave the benchmark interest rate unchanged at 0.10% and the Swiss National Bank is expected to maintain the key rate at 0.25%.
The EUR/USD rose to a 12-month high as investors financed risky assets by low interest dollar loans. The pair pulled back slightly in the afternoon, hovering just below the 1.4719 level last hit in December 2008. There are resistance in the 1.49 area and support from the uptrend in the 1.44 area. The pair is overbought on both the weekly and daily relative strength indexes.
Financial and Economic News and Comments
US & Canada
US consumer prices increased a slightly more-than-expected 0.4% m/m in August after being unchanged m/m in July, CPI data from the Labor Department showed. The CPI fell 1.5% y/y. The month-on-month increase in August CPI was driven by a 9.1% m/m gain in gasoline prices. Energy costs rose 4.6% m/m in August after a 0.4% m/m slide in July, while food prices increased 0.1% m/m following July's 0.3% m/m decline. The core CPI, which excludes food and energy, increased 0.1% m/m in August, the same rate as in July. The core CPI rose 1.4% y/y. Real average hourly earnings declined 0.2% m/m in August but rose 4.5% y/y.
US industrial production rose a slightly more-than-expected 0.8% m/m in August after an upwardly revised 1.0% m/m increase in July, according to IP data from the Federal Reserve. August IP declined 10.7% y/y. Capacity utilization grew more than expected to 69.6%, the highest level since February, after July's upwardly revised 69.0%. Manufacturing production advanced 0.6% m/m in August after an upwardly revised 1.4% m/m gain in July. Motor vehicle/parts production climbed 5.5% m/m in August while manufacturing ex-autos increased 0.4% m/m, the second consecutive monthly gain. Manufacturing capacity utilization rose to 66.6%, following July's upwardly revised 66.1%.
The NAHB/Wells Fargo US housing market index increased in September to 19, as forecast, from 18 in August, indicating US builder confidence rose this month to the highest level since May 2008, according to the latest release from the National Association of Home Builders. The index gauging current sales conditions rose to 18 in September from 16 in August and the index measuring traffic of prospective buyers increased to 17 from 16; however, the index gauging sales expectations for the next six months declined slightly to 29 from 30.
The US current-account deficit narrowed to $98.8 billion in Q2 2009, the least since 2001, from a revised $104.5 billion in Q1, the Commerce Department said.
Net foreign purchases of long-term securities were $15.3 billion in July after $90.2 in June, while monthly net TIC flows were -$97.5 billion following June's -56.8 billion, the Treasury said.
Canada's manufacturing sales rose a more-than-expected 5.5% m/m in July, the largest gain since 1998, to C$41.4 billion ($38.7 billion), after an upwardly revised 2.2% m/m advance in June, figures from Statistics Canada showed. The gain was driven by sales in the motor vehicle industry, which jumped 48.2% m/m to C$3.3 billion. Excluding the motor vehicle assembly and motor vehicle parts industries, manufacturing sales grew 2.1% m/m. July manufacturing sales fell 22.4% y/y.
Eurozone consumer prices increased 0.3% m/m in August after a 0.7% m/m decline in July, according to CPI data from Eurostat. The consumer-price inflation rate was -0.2% y/y, up from July's record-low -0.7% y/y. The numbers came in line with expectations. The core CPI rate was at 1.3% y/y in August, the same rate as in July and the lowest in three years.
UK jobless claims rose a less-than-expected 24,400 in August to 1.61 million, the highest level since May 1997, after rising an upwardly revised 25,200 in July, according to data from the Office for National Statistics. The claimant count rate was 5.0% in August, the highest since August 1997. Overall unemployment in the three months through July rose 210,000 to 2.47 million, the highest level since 1995. The unemployment rate based on International Labour Organization methods was 7.9% for the three months to July, the most since 1996. Average earnings including bonuses increased 1.7% y/y in the three months through July. Average earnings excluding bonuses increased 2.2% y/y, the least since records began in 2001.
Switzerland's retail sales rose 1.0% y/y in July, the fourth gain in five months, after a 0.9% y/y increase in June, data from the Swiss Federal Statistical Office showed, in line with our forecast.
Swiss investor sentiment rose sharply in September. The ZEW-CS Swiss economic expectations index surged to 58.0 this month from 18.6 in August, according to a survey from Credit Suisse and the ZEW Centre for European Economic Research.
Australia's Westpac-Melbourne Institute leading index, a measure of future economic activity, increased 1.1% m/m in July, the largest monthly gain since April 2003, with the LEI annualized growth rate improving to -1.8% from June's -4.6%, pointing to a significant improvement in growth prospects in 2010, Westpac Banking Corp. and the Melbourne Institute reported. The coincident index, measuring current economic activity, was little changed m/m in July, with the annualized growth rate at -0.2%, suggesting a soft outcome for growth in the September quarter, the report said.
FX Strategy Update