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Daily U.S. Forex Summary

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The US dollar, initially pressured against its European counterpart

Thu, May 15 2008, 06:03 GMT
by Union Bank of California Team

Union Bank of California

The US dollar, initially pressured against its European counterpart, gained ground despite the release of a smaller-than-expected rise in consumer prices for the month of April. U.S. consumer prices rose 0.2 percent, less than the 0.3 percent forecasted rise, while core prices which exclude volatile food and energy, were up just 0.1 percent, half the increase analysts had forecast.

In other news San Francisco Federal Reserve Bank President Janet Yellen came out and said that much of the recent data on inflation has been "disappointing" and that consumer inflation, excluding food and energy prices were too high. She went on to say that the Fed "cannot be complacent about inflation," leading investors to believe that rate cuts are off the table for the time being.

Look for the greenback to remain range bound against its major counterparts ahead of the Philly Fed. manufacturing survey due out tomorrow and consumer sentiment on Friday.

The euro struggled in early trading after the market digested the release of disappointing Euro Zone industrial production figures, which came in at -0.2 percent m/m and below a consensus calling for 2.0 percent y/y. The market will turn its focus to tomorrows Euro Zone CPI release, where expectations remain that the headline will drop to 3.3 percent y/y and core to 2.0 percent y/y. Ahead of the release look for EUR/USD to remain range bound.

Sterling reached a three-month low versus the dollar after the release of the Bank of England's (B of E) quarterly report. The report showed inflation remaining above the key target, with economic growth starting to slow. In other releases, unemployment benefits rose for the third straight month, while average earnings grew. UK officials, however, don’t seem to be concerned over their weakening currency with B o E governor Mervyn King stating that the depreciation of the pound will support the rebalancing of the economy.

The Japanese yen weakened against its U.S. counterpart despite a release showing Japan's corporate goods price index rose 3.7 percent in April, prompting officials to start to consider a rate hike in Japan. Look for USD/JPY to remain range bound, however, trading between 103.90 and 105.94.

The Canadian dollar hit parity as oil prices continued to climb to record levels topping $127 a barrel. With no Canadian data due out today, the market will look towards Canada’s survey of manufacturing due out tomorrow. Ahead of that release look for the commodity linked currency to continue to be driven by oil prices.

The Australian dollar weakened against its U.S. counterpart after lower-than-expected first quarter wages growth overshadowed the possibility of further interest rate hikes from the Reserve Bank of Australia. Data showed Australia's first-quarter wage price index rose 0.9 percent q/q, lower than the market forecast of a 1.1 percent rise.

Aussie pushed higher against the New Zealand dollar touching its highest level since August 2006 amid expectations that rates in New Zealand will likely ease in coming months. The market will look towards New Zealand's first-quarter retail sales figures due out tomorrow for further direction into both currency pairs.

Published on  Thu, May 15 2008, 06:04 GMT