- The dollar traded mixed on Wednesday. The euro rose on speculation US interest rates will stay low even longer than earlier thought. St. Louis Fed President James Bullard stated that if history is any guide, the FOMC would not start raising rates until early 2012. US housing starts unexpectedly dropped and consumer-price inflation rose slightly more than expected. The S&P 500 slipped 0.52 to 1,109.80. The yen declined modestly for a second day. The unexpected drop in US housing data pressured economic-growth-sensitive commodity currencies. The Canadian dollar fell despite Canada's consumer prices registering their first annual rise in five months, and the Australian dollar declined despite a surge in the Australian leading economic index.
- The GBP/USD fell after Bank of England minutes showed the vote to increase the bond-purchase program by £25 billion was a three-way split. Spencer Dale wanted no change and David Miles sought a £40 billion expansion. The BOE also discussed a possible cut in the remuneration paid on UK bank deposits, which should induce banks to lend more. The GBP/USD, having been trading sideways since the early summer, is approaching important resistance in the 1.70 area. There is support from the short-term uptrend. If this support is broken, the GBP/USD outlook will turn bearish and possibly fall to the 1.60 area.
Financial and Economic News and Comments
US & Canada
- US consumer prices grew a slightly more-than-expected 0.3% m/m in October after a 0.2% m/m increase in September, CPI data from the Labor Department showed. The CPI declined 0.2% y/y. Energy prices rose 1.5% m/m in October, while food prices increased 0.1% m/m. The core CPI, which excludes food and energy, grew 0.2% m/m for a second month in October. The core CPI rate increased to 1.7% y/y from September's 1.5% y/y. Real average hourly earnings slipped 0.1% m/m in October.
- US housing starts unexpectedly fell 10.6% m/m to a seasonally adjusted 529,000 annual rate October from an upwardly revised 592,000 rate in September, according to figures released by the Commerce Department. Single-family starts declined 6.8% m/m in October; however, rising 33.3% from the January/February low. Multi-unit starts tumbled 34.6% m/m in October to the lowest level in at least 50 years. Housing starts fell in every major region of the country. Building permits unexpectedly declined 4.0% m/m to a 552,000 annual rate In October from an upwardly revised 575,000 rate in September. Permits for single-family units were essentially unchanged.
- Canada's consumer-price inflation was up 0.1% y/y in October, as forecast and posting its first annual increase in five months, after a 0.9% y/y decrease in September, CPI data from Statistics Canada showed, ending the longest stretch of declines since 1953. October consumer prices were down 0.1% m/m. The Bank of Canada core inflation rate accelerated to 1.8% y/y in October from 1.5% y/y in September. The BOC core CPI increased 0.1% m/m.
- The eurozone seasonally adjusted current account recorded a €5.4 billion ($ 8.0 billion) deficit in September (corresponding to a €5.0 billion deficit nsa), after an upwardly revised €0.6 billion surplus in August (corresponding to a revised €3.5 billion deficit nsa), the European Central Bank reported.
- UK consumer prices increased a slightly more-than-estimated 0.2% m/m in October after remaining unchanged m/m in September, the Office for National Statistics said. The inflation rate accelerated for the first time in eight months, to 1.5% y/y in October from 1.1% y/y the prior month. The core inflation rate rose to 1.8% y/y, as forecast, from September's 1.7% y/y. Retail prices increased 0.3% m/m in October after a 0.4% m/m advance in September. The retail price inflation rate strengthened by the greatest degree since August 1990, increasing to -0.8% y/y from September's -1.4% y/y.
- Eurozone construction output fell a seasonally adjusted 1.1% m/m in September, the fourth fall in five months, after an upwardly revised 0.1% m/m increase in August, Eurostat reported. September construction output fell 8.0% y/y wda, following a revised 10.0% y/y August drop.
- Demand for UK manufactured goods remains very weak, but is less depressed than it has been for much of 2009, and over the next three months firms expect output to grow slightly, the Confederation of British Industry said. A balance of 45% of firms said total order book levels were below normal, which was a slight improvement on October (-51%), and the least negative since December 2008 (-35%).
- The pace of the Australian economic recovery has improved remarkably. The Australian Westpac-Melbourne Institute leading economic index increased 0.9% m/m to 255.1 in September, with its annualized growth rate accelerating to 5.8% from May's -5.4%, supporting Westpac's forecast that economic growth in Australia will pick up from 1.75% in 2009 to 4% in 2010, Westpac Banking Corp. and the Melbourne Institute reported. Current economic activity continued to improve in September; the coincident index increased 0.2% m/m to 239.2 and grew at an annualized growth rate of 0.4%.
- Australian wages excluding bonuses increased 0.7% q/q in Q3 2009, as forecast, after a 0.8% q/q advance in Q2, according to the Q3 Australian wage price index released by the Australian Bureau of Statistics. Wage growth eased to 3.4% y/y from Q2's 3.8% y/y, easing Reserve Bank of Australia rate-rise pressures next month.
- Japan's machine tool orders fell 42.5% y/y in October, revised from a previously reported 42.6% y/y fall, according to final October data from the Japan Machine Tool Builders' Association. Domestic orders dropped a revised 56.8% y/y in October, while foreign orders decreased a revised 30.8% y/y.
FX Strategy Update