The dollar and yen fell on Friday after the US government agreed to provide a $138 billion lifeline to Bank of America. Treasury Secretary Henry Paulson said the government is working on the idea of setting up a bad bank to deal with the banking sector's illiquid assets. The government's actions to stabilize the banks reduced the risk aversion. More signs of a deepening global recession persist, with US consumer-price inflation decelerating to the lowest level since 1955, US industrial production tumbling, and European exports plunging. The euro rose for a second day following yesterday's successful test of the 1.30 support. Sterling rose for a third day but pared earlier gained on increased concerns over the UK banking sector. The Canadian and Australian dollars rose as gold and crude oil gained.

The USD/JPY rose as risk aversion decreased. Following the aborted rally after the break of the long-term downtrend, the pair is now trying to find support. The pair and other yen crosses are at important supports and all rose today. The penetration of last year's downtrend indicates further gains. Supports are in the 89 and 87 areas, while resistances exist in the 91 and 94 areas.

Financial and Economic News and Comments

US & Canada

* US consumer prices declined a less-than-expected 0.7% m/m in December after falling at a 1.7% m/m record pace in November, Labor Department data showed. The CPI rose 0.1% y/y, the lowest increase since 1955. Energy prices, which fell 8.3% m/m, accounted for the December CPI monthly decline. Food and beverage prices were unchanged m/m in December but rose 5.8% y/y. Excluding food and energy, the core CPI was unchanged m/m in December but increased 1.8% y/y. Excluding energy, the CPI was unchanged m/m in December but rose 2.4% y/y. Real average hourly earnings increased 1.2% m/m in December and rose 4.5% y/y, the largest gain since the early 1970s.

US industrial production decreased a more-than-expected 2.0% m/m in December after declining 1.3% m/m in November, according to data from the Federal Reserve. Industrial production dropped 7.8% y/y. Manufacturing production fell 2.4% m/m in December, down 10.0% y/y. The production of high-tech equipment fell 4.1% m/m in December, down 6.5% y/y. Overall capacity utilization declined to 73.6% in December from November's 75.2%. Manufacturing capacity utilization declined to 70.2%, the lowest since 1983, versus November's 71.9%.

US consumer confidence unexpectedly rose in January, supported by a retreat in gasoline prices and relatively positive expectations for President-elect Barack Obama's financial-rescue plans, as the Reuters/University of Michigan preliminary index of consumer sentiment improved to 61.9, the second straight monthly increase, from December's 60.1. Nevertheless, American consumers were downbeat about their current situations as the current conditions index declined to 69.2 from December's 69.5. The consumer expectations index increased to 57.2 from 54.0. The inflation expectations index rose in January compared to December's survey, with consumers seeing a 2.0% inflation rate over the next 12 months and a 3.0% rate over the next five years.

* Citigroup reported a Q4 2008 net loss and provided more details of an ongoing restructuring plan that will divide the company into two separate businesses -- Citicorp and Citi Holdings.


* The eurozone trade balance posted a €7.0 billion deficit in November, following October's downwardly revised €0.5 billion surplus, Eurostat reported. In seasonally adjusted terms, trade deficit rose to €4.9 billion in November from October's revised €2.1 billion. Seasonally adjusted exports fell 4.7% m/m in November, the biggest fall since June 2000, while imports declined 2.5% m/m.
* Switzerland's producer and import prices declined for a fifth month, contracting a more-than-expected 0.7% m/m in December, following November's 1.4% m/m decline, data from the Swiss Federal Statistical Office showed. Producer and import prices increased a less-than-forecast 0.4% y/y in December, down from November's 1.1% y/y gain. The falling price pressures in line with the SNB inflation forecast for 2009, which decelerates to 0.9% from 2008's 2.4%, support an argument for a further Swiss National Bank interest-rate cut.


* Bank of Japan Governor Masaaki Shirakawa said companies are facing difficulties in raising funds amid deteriorating markets, adding to speculation the BOJ will start buying corporate debt. 'It's becoming harder for companies to raise funds through commercial paper and corporate bond markets,' Shirakawa said, adding that 'continued strains in global financial markets are driving down stock prices and raising credit costs, which are starting to affect the businesses of financial institutions.'