Expert Analysis of Today's Market

• The dollar fell against all major currencies pressured by higher-than-expected US initial jobless claims. President George W. Bush’s claims, that the US is not headed into a recession and his administration supports a strong dollar policy, did not convince the market. The dollar’s interest rate disadvantage pressures the greenback. Futures on the Chicago Board of Trade priced in a 2% Fed funds rate by midyear. The yen approached a 2 1/2-year high and the Swiss franc rose to a new record high on increased risk aversion and the dollar’s weakness.


• The EUR/USD rose to a record high for a third straight day after weaker-than-expected US economic data and stronger-than-expected European indicators. A weak US labor market and slower-than-forecast economic growth bolstered bets the Federal Reserve will cut interest rates through June. The pair’s momentum is strong, likely to continue as the US government continues its policy of benign neglect. Strong support exists at the old triple top.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims rose a stronger-than-expected 19,000 to 373,000, in the week ended February 23, from an upwardly revised 354,000 a week earlier, the Labor Department said. The four-week average of new claims fell slightly by 1,250 to 360,500. Initial claims, a leading economic indicator of recession, have deteriorated and showed increasing US recession risks. Continuing claims rose 21,000 to 2,807,000 in the week ended February 16.

• The Commerce Department left unchanged its 0.6% q/q estimate for Q4 GDP. Exports were revised higher and imports revised lower, while inventories fell more than expected. Consumer spending and business outlays were also revised lower. Inflation gauges were revised up slightly. The price index for personal consumption rose at a 4.1% annualized rate in Q4, compared to the previously estimated 3.9% climb and 1.8% increase in Q3. The PCE price gauge excluding food and energy increased 2.7%, compared to the 2.0% increase in Q3.


• President George W. Bush said his administration supports a strong dollar, and the currency’s value will be reflected by markets as the economy grows. “We believe in a strong dollar policy, and we believe, I believe, our economy’s got the fundamentals in place to grow and continue growing,” Bush said at a news conference at the White House. “The value of the dollar will be reflected in the ability for our economy” to keep growing, he said, adding that the US isn’t headed into a recession.

Europe

• Germany’s jobless rate fell to 8.0% in February, the lowest since November 1992, the Federal Labor Agency said.


• Bloomberg purchasing managers’ index of European retail sales rose more than expected to 52.4 in February from 48.1 in January, the first increase in five months and the highest since April 2007. Retailer’s confidence rose to a strong 59.9, the highest level since May 2007, from 47.7 in January.


• European Central Bank President Jean-Claude Trichet said “price stability is a necessary condition” for ongoing economic expansion and employment.

Asia-Pacific

• Japan’s factory production fell a stronger-than-expected 2.0% m/m in January, following a 1.4% m/m increase in December, the Trade Ministry said.


• The Japanese economy is in a soft patch that may be “somewhat prolonged,” Bank of Japan policy board member Atsushi Mizuno said. Production will probably be flat this quarter and improve thereafter, he said.


• Australia’s capital spending rose a stronger-than-expected 5.1% q/q in Q4, following a 6.2% q/q drop in Q3, the Bureau of Statistics said.

FX Strategy Update