Expert Analysis of Today's Market

• The dollar rose against its rivals on Monday. Sterling declined versus most major currencies and fell to a new all-time low versus the euro as a report showed weakness in UK home prices. The Australian dollar was pressured by weakness in commodities and speculation the Reserve Bank of Australia will hold interest rates steady. The Canadian dollar declined following signs of more stress in Canada’s commercial paper market and falling crude prices. The yen fell on increased risk appetite as US stocks traded higher.


• The EUR/USD traded higher on a report of record high European inflation. The pair later fell slightly after unable to penetrate resistance at the all-time high for the fourth day.

Financial and Economic News and Comments

US & Canada

• The National Association of Purchasing Management-Chicago said its PMI index rose more than expected to 48.2 in March from a 6-year low of 44.5 in February. The March number still indicates a contracting Midwest manufacturing sector. New orders rose to 53.9 in March from 48.8 in February, production rose to 50.4 from 46.5, and the employment index rose to 44.6 from 33.5. The measure of prices paid for raw materials increased to 83.9 in March from 79.4 in February.

• UCanada’s GDP rose a stronger-than-expected 0.6% m/m in January following a 0.7% m/m drop in December. The yearly growth rate rose to 2.2% y/y in January from 2.0% y/y in December. Overall, growth is still decelerating.

• The PCE deflator rose 0.1% m/m and 3.4% y/y in February. The PCE price index excluding food and energy, or core PCE, also rose 0.1% m/m in February, up 2.0% y/y, just at the upper bound of the Fed’s preferred inflation range.


• Treasury Secretary Henry Paulson called for an overhaul of the entire US financial regulation system to make it more streamlined and to give broader power to the Federal Reserve. As the proposal will take time to enact, it is unlikely to have much impact on the current financial-market crisis.

Europe

• EMU consumer price inflation rose to a higher-than-expected 3.5% y/y in March, the highest rate since June 1992, up from February’s 3.3% y/y rate, Eurostat reported. This makes it harder for the European Central Bank to lower interest rates as the ECB aims to keep the inflation rate below 2%.


• UK house prices fell for a sixth month in March as banks curtailed lending and consumers lost confidence in the property market. The average cost of a home in England and Wales declined 0.2% m/m to £174,100 ($347,000) and the annual rate of growth slipped to 0.4% y/y, Hometrack Ltd. said.

Asia-Pacific

• Japan’s manufacturing production fell a less-than-expected 1.2% m/m in February following a 2.2% m/m decline in January, the Trade Ministry said.


• Japanese average monthly wages rose 1.3% y/y in February, the Labor Ministry said.


• Japan’s Prime Minister Yasuo Fukuda warned downside risks to Japan’s economy are rising.

FX Strategy Update