• The dollar was little changed against its key rivals Monday. Wachovia Corp.s first-quarter loss fueled concern the worst of the credit crisis is not over, outweighing the G-7s concern over currency volatility. Sterling, todays best performer, rose versus other key currencies after a report showed March UK producer prices rose at the highest annual rate since 1991. The Australian dollar fell on signs of a stalling housing market. The Canadian dollar rose modestly on higher energy prices.
  • Initially pressured by the G-7s seeming concern of further dollar depreciation, the EUR/USD later pared losses as new credit losses in the US highlighted European growth and interest rate advantage. The pair is still below the 1.59-area resistance and above support from the uptrend.


Financial and Economic News and Comments

US & Canada

  • US retail sales unexpectedly rose 0.2% m/m in March, supported by a 1.1% m/m increase in gasoline sales, the Commerce Department said. Excluding gasoline sales, March retail sales were flat. Excluding automobiles, retail sales increased 0.1% m/m. Despite better-than-expected data, retail sales are likely to be under pressure in the near future. Retail sales slowed to 2.0% y/y in March from 2.9% y/y in February.


  • The G-7 said on April 11: Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability. The statement did not explicitly mention the dollar or suggest plans for intervention; however, we believe it may be an indication that the G-7 is foreseeing further dollar depreciation as counterproductive.
  • US business inventories rose 0.6% m/m to a seasonally adjusted $1.468 trillion and business sales decreased 1.1% m/m to $1.143 trillion in February, the Commerce Department said. The inventory-to-sales ratio increased to 1.28 in February from 1.26 in January. The higher inventories and lower sales suggest that businesses will decrease inventories over the next few months which will be negative for GDP growth, but the effect may be smaller than usual in a contraction as the inventory-to-sales ratio is relatively low.
  • Bank of Canada Governor Mark Carney said he is concerned the US economic recovery may be slower than expected, bolstering expectations of a BOC interest-rate cut as much as 50 basis points this month.


  • UK producer prices rose a stronger-than-expected 6.2% y/y in March, the highest annual rate since 1991, due to record increases in raw material costs, the Office for National Statistics said. Raw material costs rose 20.6% y/y, the most since records began in 1986.
  • EMU industrial production rose 0.3% m/m and 3.1% y/y in February, Eurostat reported.


  • European Central Bank Governing Council member Yves Mersch said there is no scope for an interest-rate cut in the euro zone this year, as the ECB may need to revise up its inflation outlook.
  • The leading research institutes hired by the German government to forecast Germanys economic growth have cut their estimates for 2007 to 1.6% from its earlier forecast of 2.2%.


  • The Bank of Japans minutes from the March meeting showed the BOJ remained committed to its policy of raising interest rates gradually even as risk factors have been increasing both at home and abroad. Still BOJ policy makers concurred that their basic thinking on the monetary policy stance for the future remained unchanged.
  • Australian home-loan approvals unexpectedly fell 5.9% m/m in February, the most in four years, the Bureau of Statistics reported. The steep decline indicates Australias 17 year-old expansion is slowing.
  • The yuan rose after Peoples Bank of China Governor Zhou Xiaochuan said China will let the yuan appreciate and may increase interest rates to temper inflation. The anti-inflation policy is a combination of both quantitative measures and price measures, he said.

FX Strategy Update