• The dollar was mostly lower on Wednesday. US economic data was mixed: the ISM non-manufacturing index rose but the ADP forecast a contraction in US private employment in February. The euro hit a new high ahead of the European Central Bank’s interest-rate decision tomorrow. Sterling rose ahead of the Bank of England’s rate decision tomorrow. The ECB and BOE are likely to keep rates unchanged. Rising international equity prices and better-than-expected services sector indicators in both Europe and the US increased risk appetite and decreased bets on a possible US recession. The dollar block currencies were supported by rising commodity prices. The yen was the only major currency that was weaker than the dollar.
  • The USD/JPY rose on renewed carry-trade demand and a report on weak Japanese capital spending. The pair pared gains after US stocks erased their morning advance after Ambac unveiled details of its stock offering, which disappointed investors. The pair will continue to trade in tandem with the stock market. Both the USD/JPY and US stocks are oversold, increasing the chance of a short-term bounce. There are resistance in the 105-area and strong support in the 102-area.


Financial and Economic News and Comments

US & Canada

  • The Institute for Supply Management’s non-manufacturing index rose to 49.3 in February from a record-low 44.6 in January. The previous headline index, which gauges business activity, rebounded strongly to 50.8 in February from 41.9 in January.
  • US factory orders in January fell for the first time in five months but improved from last year’s slump. Orders fell 2.5% m/m in January but still rose 7.7% y/y, the Commerce Department said. The drop in total orders was led by aircraft and computers. Excluding orders for transportation equipment, orders fell 0.4% m/m in January but rose 8.0% y/y.


  • US productivity rose an upwardly revised 1.9% q/q in Q4, the Labor Department said. Unit labor costs rose an upwardly revised 2.6% q/q, the biggest increase since Q1.
  • ADP Employer Services forecast that US companies unexpectedly cut workers in February, the first decline in almost five years. The decrease of 23,000 jobs in February followed a downwardly revised gain of 119,000 in January. Assuming 25,000 government jobs creation, the report indicates a flat job market.
  • The Fed’s Beige Book showed economic growth has slowed in 8 of 12 US regions since the beginning of the year, hurt by faltering retail sales and manufacturing and a continued decline in housing.


  • The EMU services PMI rose to 52.3 in February from 50.1 in January, but the trend is still down.


  • The OECD cut its forecast for 2008 economic growth and now expects expansion of less than 2% for its 30 member nations. Secretary General Angel Gurria said “2008 will be a difficult year of lower growth and some more unpleasant surprises.” In December, the OECD predicted a 2.3% growth rate in 2008. Jean-Luc Schneider, deputy director of the OECD’s Economics Department, said that while the agency is “not yet completely convinced there will be a recession” in the US, the US economy will be “flirting” with contraction.
  • UK consumer confidence fell to 78 in February, the lowest level in more than three years, from 81 in January, Nationwide Building Society said.
  • The UK services PMI unexpectedly rose 54.0 in February, the highest since September, from 52.5 in January, the Chartered Institute of Purchasing and Supply said.


  • Australia’s Q4 GDP rose 0.6% q/q after rising a revised 1.1% q/q in Q3, the Bureau of Statistics said. The Q4 GDP rose 3.9% y/y. The chain price index rose 0.6% q/q.
  • Japanese capital spending fell a larger-than-expected 7.3% y/y in Q4 2007, the Ministry of Finance said.


FX Strategy Update