- The dollar rose modestly against most major currencies on Wednesday on stronger-than-expected US retail sales. The yen fell on increased risk appetite as US stocks rallied for the third day. Sterling gained after the Bank of England raised its inflation forecast and highlighted most central banks’ dilemma with high inflation and slowing growth. The Australian dollar was pressured by falling consumer confidence in Australia.
- The USD/JPY broke the 107.50 resistance and rose to a one-month high as the US equity rally increased demand for carry trades. There are strong resistance in the 110-area and support in the 105-106. The pair will continue to follow the stock market.
Financial and Economic News and Comments
US & Canada
- US retail sales unexpectedly increased 0.3% m/m in January and rose 3.9% y/y. Retail sales excluding autos rose 0.3% m/m and 4.9% y/y. The largest gains in retail sales were at gas stations and auto dealers. The largest decline was in building materials. Retail sales are weak but not collapsing.
- US inventories increased 0.6% m/m to a seasonally adjusted $1.445 trillion in December, the Commerce Department said. Business sales decline a slightly less-than-expected 0.5% m/m to $1.147 trillion in December. The inventory-to-sales ratio rose to 1.26 in December from 1.25 in November. Inventories grew 4.0% y/y and sales climbed 6.0% y/y.
- UK claims for jobless benefits fell a more-than-expected 10,800 in January to 794,600, the lowest since June 1975, the Office for National Statistics said. The unemployment rate remained at 2.5% according to the claimant count and fell to 5.2% according to the ILO measure in December.
- The Bank of England predicted inflation will overshoot the central bank’s 2% goal in two years and risks breaching the government’s 3% limit before then.
- Sweden’s Riksbank surprised the market by raising its key rate to 4.25% from 4.0% and said it is unlikely to ease before the end of 2008. The central bank said: “Development in the US makes the outlook uncertain, but we have to make Swedish monetary policy according to Swedish conditions.”
- Australia’s consumer confidence fell to 97.4 in February from 103.1 in January, according to Westpac Banking Corp, indicating that pessimists outnumber optimists.
- Japan’s producer prices rose a stronger-than-expected 3.0% y/y in January, the fastest since 1981, after a 2.6% y/y gain in December, the Bank of Japan said. Prices rose 0.2% m/m in January, a fourth monthly increase.
- Japan’s consumer confidence dropped to its lowest level in more than four years in January. Japan’s consumer sentiment index fell to 37.5 in January from 38.0 in December, the Cabinet Office said. This is the lowest level since June 2003, not boding well for consumption.
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