Asian stocks rose for the first time in three days as commodity prices gained and Japanese bonds declined as outlook for improved earnings and economic growth overcome the Egypt political tensions. The MSCI Asia Pacific Index rose 0.3%, MSCI Emerging Market Index gained 0.2%, Nikkei rose 0.35%, Hang Seng rose 0.25% and the Shanghai Composite increased 0.3% as manufacturing and input costs expanded. The Chinese markets will remain closed tomorrow and reopen on Feb. 9 on account of Lunar New Year. Asian economies may increase rates as inflation levels rise with Indonesia inflation rising 7.02%, Thailand inflation rising 3%, South Korea inflation rising 4.1% which have all added to case for rate increases in the respective economies supporting the case for recovery in the strong Asian markets.
The EURUSD rose to a high of 1.3730 for a second day as Asian stocks recovered on speculation of a worldwide recovery, GBPUSD moved to a 10-week high of 1.6080 on speculation that the BOE will increase interest rates three times this year, AUDUSD climbed to high of 1.0039 after the RBA kept interest rates unchanged at 4.75% and on signs of rising private investments, EURCHF rose to a high of 1.2947 as reports showed EU inflation rose 2.4%, the fastest in two years giving rise to speculation that the ECB would increase rates and the USDJPY declined to a one-month low of 81.76. There are strong sentiments of a recovery on a global scale which is adding pressure on the US Dollar and the Yen while boosting the Euro.
The UK NIESR said that it sees the UK interest rates to rise to 1.25% by year-end, compared with an earlier forecast of 0.75% and increased the 2011 inflation forecast to 3.8% from 2.8% as expectations rose for higher UK borrowing costs which is strengthening the GBPUSD. The RBA left the interest rates unchanged at 4.75% and said that the inflation would remain within the 2% - 3% range throughout the year while manufacturing contracted to 46.7, for a fifth month. The currency moved above parity as the RBA added that it's not in a hurry to change rates as it also tries to rebuild following the flood situation but downward risks remain for the currency to erase profits. We expect the risk appetite to remain strong as US releases manufacturing data which could show growth for the 18th month rising to 58.5 while Germany would show reports that unemployed people would drop 10,000 adding to signs of labor market recovery.
EU Producer prices, Manufacturing data, unemployment, German manufacturing data, unemployment data, UK Net consumer credit, lending, manufacturing, money supply and US manufacturing and construction spending data would form today's economic calendar and we expect the Dollar to continue to weaken.