Expert Analysis of Today's Market

• The dollar fell against the dollar-block and European currencies but rose against the yen on Tuesday. Sterling advanced after the UK inflation rate unexpectedly rose above the Bank of England’s 2% inflation target, reducing the case for an interest-rate cut.


• The USD/JPY rose today from yesterday’s 18-month low after Prime Minister Yasuo Fukuda’s warning about the pace of the yen’s advance and the possibility of intervention. Rising US equity prices prompted a halt to the unwinding of carry trades. The pair traded above important support at the 109-110 area. If this support is broken, the USD/JPY will fall more dramatically.

Financial and Economic News and Comments

US & Canada

• Canada will inform the G-20 that Canada is bearing the brunt of the US dollar’s decline, a Canadian finance ministry official said. Canada and Europe are each absorbing about a third of the drop in the dollar, crimping their economic growths, the official told reporters in Ottawa on condition of anonymity according to Bloomberg News.

Europe

• UK consumer inflation rose a stronger-than-expected 2.1% y/y and 0.5% m/m in October, the most since June, compared with a 1.8% y/y increase in September, the Office for National Statistics said. This is above the Bank of England’s 2% upper bound of its inflation target.


• German investor confidence dropped to the lowest in almost 15 years in November following credit-market turmoil, record energy costs and a surging euro. The ZEW Center for European Economic Research reported its index of investor and analyst expectations fell more than expected to -32.5 in November, the lowest since February 1993, from -18.1 in October. Current economic situation is still at a high reading of 70. Overall the index indicates growth in Germany has peaked.

Asia-Pacific

• Japan’s economy grew a faster-than-forecast 2.6% y/y and 0.6% m/m in Q3 as an unexpected increase in consumer spending countered a drop in housing construction. Exports rose 2.9% y/y, an annualized pace of 12% q/q. Domestic demand grew moderately, as strong corporate capital spending offset sharp declines in housing-related demand. Private residential investment declined 7.8% y/y as new building-safety rules went into effect. Capital spending by companies expanded 1.7% y/y, while household consumption increased 0.3%.


• The Bank of Japan, as expected, kept its key policy rate unchanged at 0.5%. The Bank of Japan kept its monthly assessment of the Japanese economy unchanged, saying it is expanding moderately.


• Japan’s Prime Minister Yasuo Fukuda was quoted as saying the yen was appreciating “too fast” and speculators needed to “be careful” to avoid the possibility of intervention.


• Chinese consumer inflation rose 6.5% y/y in October, rebounding from a 6.2% gain in September and matching August’s decade-high increase, the National Bureau of Statistics said. Food rose 17.8% y/y in October. Prime Minister Wen Jiabao said the government must take action to stabilize prices.

FX Strategy Update