Expert Analysis of Today's Market

• The yen rose to a 4 1/2-month high against the dollar and euro on Wednesday as widening credit-market losses prompted investors to sell higher-yielding assets funded by loans in the Japanese currency. The dollar gained versus most other currencies and pared some losses against the yen after today’s US economic data did not indicate the Federal Reserve is likely to lower interest rates. Sterling dropped for a fifth day after the Bank of England’s Monetary Policy Committee voted unanimously to keep interest rates unchanged at the latest MPC policy meeting. The Canadian and Australian dollars fell to an 11-week low as credit problems are spreading.


• The USD/JPY fell to the lowest level since March 28 on falling equity markets and rising risk aversion. The pair has been closely tracking the equity markets and we do not see any change in this relationship. The pair is starting to get oversold and there is strong support at the 115-area and resistance at the 118-area. Our short position reached its objective of 116.80 today.

Financial and Economic News and Comments

US & Canada

• US consumer prices increased just 0.1% m/m in July on falling energy prices, the smallest gain in 8 months, following a 0.2% m/m advance in June, the Labor Department said. The July increase was in line with expectations. Core consumer prices rose 0.2% m/m and 2.2% y/y. The 2.2% underlying inflation rate is still above the Federal Reserve’s comfort zone.


• US industrial production rose a more-than-expected 0.3% m/m in July as manufacturers turned out more computers, motor vehicles and business equipment, after an upwardly revised 0.6% m/m rise in June, the Federal Reserve said. Utility production fell 2.1% and manufacturing rose 0.6%.


• US capacity utilization rose to 81.9% in July from June’s 81.8%. Companies are producing more goods after working off excess inventories built up late last year. Growth in industrial output, fueled by rising exports and increased business spending, is helping the economy withstand a housing-market slump.


• The Empire State manufacturing index declined slightly to 25.1 in August from 26.5 in July. The consensus expected a larger drop to 18. This is the third straight month the Empire State index has been above 25.


• The Bank of Canada will accept assets other than federal government securities as collateral for one-day loans aimed at providing liquidity to financial markets.

Europe

• Bank of England policy makers voted unanimously 9-0 to keep the key interest rate at 5.75% in August, saying they need more time to assess the impact of 5 increases in the past year on inflation, minutes of the August 1-2 Monetary Policy Committee meeting released today showed. There was no firm view on the need for further rate increases, but some members noted upside inflation risk./li>

Asia-Pacific

• China’s industrial production rose a less-than-expected 18% y/y in July, following June’s 19.4% y/y increase, the statistics bureau said.

FX Strategy Update