USD Falls on Debt Issuance Concerns

* The dollar continued to fall on Friday as investors worried about the magnitude of US debt issuance. Yesterday’s warning by PIMCO’s Bill Gross that the US will “eventually” lose its AAA credit rating prompted White House spokesman Robert Gibbs to say that the US does not believe its triple-A credit rating will be cut. The dollar also lost its safe-haven appeal this week on more signs that the worst of the credit crunch is over and the economy is recovering. The dollar index fell to a new 7-month low at the important 80-area support. The S&P 500 rose 6.21 points to 894.54, as of 14:50 EST, in light pre-holiday trading. The USD/JPY advanced and found support in the 94-area after Japan’s Finance Minister Kaoru Yosano said “the government isn’t considering currency intervention at this point” and the Bank of Japan raised its assessment of the economy. Sterling rose for a fifth day. The Australian and Canadian dollars gained this week on the better global economic growth and commodity outlook.

* The EUR/USD rose to the 1.40-area resistance for the first time since December 31. The pair rose for a fifth straight day, gaining about 5 cents for the week as investors worried how the US can finance its aggressive efforts to reverse the financial crisis. If the 1.40-area resistance is penetrated, the EUR/USD may rally to 1.45.



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Financial and Economic News and Comments

US & Canada

* Canada’s retail sales rose for a third consecutive month in March, rising a less-than-expected 0.3% m/m to C$33.9 billion ($30 billion), after February’s 0.2% m/m increase, according to data released by Statistics Canada. Retail sales excluding autos fell a slightly more-than-estimated 0.2% m/m, the first decline in three months, following February’s 0.6% m/m gain. March retail sales decreased 4.9% y/y and declined 1.9% y/y excluding autos.

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Europe

* UK GDP contracted 1.9% q/q in Q1 2009, the most since 1979, and shrank 4.1% y/y, in line with original estimates, according to data from the Office for National Statistics (ONS). A £6 billion ($9.4 billion) drop in inventories led the contraction. Consumer spending declined 1.2% q/q, the most since 1980, while investment fell 3.8% q/q.

* UK service-sector output declined 1.2% in the three months to March after a downwardly revised 1.3% fall in the three months to February, the ONS said.

Asia-Pacific

* Japan’s leading economic indicators index, measuring future economic activity, was revised slightly lower to 76.3 for March from a preliminary 76.6, while the coincident economic index, measuring current economic activity, was revised higher to 85.1 from a preliminary 84.9, final March LEI data from the Cabinet Office showed.

* The Bank of Japan unanimously voted to maintain its benchmark interest rate at 0.10%, as forecast, and raised its view of the economy for the first time since 2006. The BOJ said “economic conditions have been deteriorating, but exports and production are beginning to level out” and “expected to start recovering,” foreseeing that “the pace of deterioration in economic conditions is likely to moderate gradually, leading to a leveling out of the economy.” Regarding inflation, the central bank stated that “CPI inflation (excluding fresh food) has recently moderated reflecting the declines in the prices of petroleum products and the stabilization of food prices, and, with increasing slackness evident in supply and demand conditions, will likely become negative.” The BOJ also decided to accept foreign currency-denominated sovereign bonds as eligible collateral.

FX Strategy Update



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Источник: Hans Nilsson

22.05.2009