* The dollar gained against the euro and yen but surrendered part of its overnight gains after another dose of weak US economic data. Federal Reserve officials saw substantial risks to the US economy, the FOMC minutes released Tuesday showed. Sterling gained against the euro for a second day on speculation the UK economy will rebound faster than the eurozone economy. The Canadian dollar appreciated to the strongest level in two months versus the greenback as commodities advanced and crude oil traded above $50.
* The USD/JPY rose today on risk appetite. The pair broke its downtrend on January 2, indicating further gains. There are support in the 92-area and resistance in the 95-area.
Financial and Economic News and Comments
US & Canada
* The US ISM non-manufacturing composite index unexpectedly increased to 40.6 in December from 37.3 in November, still indicating contraction in the US services sector, the Institute for Supply Management reported. Most of the key index components rebounded in December from their record lows. The business activity index increased to 39.6 from November’s 33.0, the new orders index increased to 39.9 from 35.4, and the employment index increased to 34.7 from 31.3. The prices paid index dropped to a new record low of 36.0 in December, continuing the drop since June.
* US factory orders tumbled a more-than-expected 4.6% m/m in November, following October’s downwardly revised 6.0% m/m decline, Commerce Department data showed. The back-to-back decline was the largest since recordkeeping started in 1992.
* The US pending home sales index for November fell a more-than-expected 4.0% m/m to 82.3, the lowest level since records began in 2001, following October’s downwardly revised 4.2% m/m decline, according to data from the National Association of Realtors. Pending home sales declined in all four regions. The housing slump will extend into a fourth year amid a recessionary economy.
* Federal Reserve policy makers believed the economic outlook would remain weak for a time and the downside risks to economic activity would be substantial, according to the minutes of the December 15-16 Federal Open Market Committee meeting released today. Some officials saw the distinct possibility of a prolonged contraction from stresses in financial markets. The Fed pledged to expand emergency loans if necessary, adding that it will use all available tools to promote the resumption of sustainable economic growth and to preserve price stability. A deteriorating economy is likely to keep interest rates low for some time, according to the minutes.
* Canada’s industrial product price fell 2.6% m/m in November, while the raw materials price dropped 13.4% m/m, Statistics Canada reported.
* The eurozone services sector contracted for a seventh month and continued to deteriorate as the eurozone services PMI declined to a series low of 42.1 in December, revised from the original estimate of 42.0, compared with November’s 42.5, Markit Economics reported. The final composite PMI fell to 38.2 for December, down from both the 38.3 estimate and November’s 38.9.
* The eurozone consumer-price inflation rate slowed to 1.6% y/y in December, the lowest in more than two years and below the European Central Bank’s 2.0% y/y ceiling for the first time since August 2007, following 2.1% y/y in November, Eurostat reported.
* The German services sector showed signs of improvement in December, as the German services PMI was revised up to 46.6 from the preliminary estimate of 46.4, rebounding from November’s 45.1, Markit Economics reported.
* UK services activity unexpectedly improved in December, with the UK services PMI increasing to 40.2 from November’s 40.1; nevertheless, remaining near the record low level, according to the Chartered Institute of Purchasing and Supply and NTC Research. Employment declined to a new record low of 40.5 in December versus November’s 43.1.
* UK home prices fell 2.5% m/m in December following November’s 0.4% m/m decline, Nationwide Building Society said. Home prices dropped 15.9% y/y, the biggest drop since 1991.
* The Australian Industry Group’s performance of services index grew to 39.3 in December after November’s 37.8, indicating the Australian services industry contracted for the ninth consecutive month.
* Japan’s monetary base increased 1.8% y/y in December after a 1.9% y/y rise in November, the Bank of Japan reported.
FX Strategy Update