Expert Analysis of Today's Market

• The dollar fell versus the yen but rose against the euro on Tuesday after the Federal Open Market Committee meeting. The FOMC voted unanimously to leave interest rates unchanged at 5.25% for the ninth straight meeting and said inflation remains its “predominant policy concern.” Sterling fell to a 2 1/2-month low versus the euro after a report showed UK retail sales rose at the slowest pace in 8 months, dampening speculation on Bank of England interest-rate increases.


• The yen rose across the board after the Fed’s worries over inflation trumped concerns about turbulent financial markets, propelling traders to flee riskier assets. In New York trading at 4:07 pm, the dollar was quoted at 118.70 yen, compared with 119.03 yen late Monday.

Financial and Economic News and Comments

US & Canada

• US productivity rose less than forecast and unit labor costs rose more than anticipated. Productivity, a gauge of employee efficiency, in Q2 rose at an annual rate of 1.8% after a downwardly revised 0.7% increase in Q1, the Labor Department said. Unit labor costs, a measure of wages and benefits, rose a more-than-expected 2.1% in Q2, from an upwardly revised 3% rise in Q1, and jumped 4.5% in the 12 months ended in June. Overall the numbers suggest inflation remains a risk.


• The Federal Open Market Committee, as expected, kept its benchmark interest rate unchanged at 5.25%. The FOMC said inflation is still its main concern and the biggest danger to the US economy. “Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated….Although the downside risks to growth have increased somewhat, the committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected,” the FOMC said today after meeting in Washington. Regarding the outlook for the US economy, the Fed said: “Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.”

Europe

• Germany’s Industrial production unexpectedly fell in June, led by a drop in consumer goods and construction. Output declined a seasonally adjusted 0.4% m/m in June after rising 1.9% in May, the Economy and Technology Ministry said, compared with the expected 0.5% increase. Production rose 5.1% y/y. The numbers indicate the German production activity may have passed its peak; however, the dynamic remains above the long-term average.


• UK retail sales in July rose 1.2% y/y, the least since November, as higher interest rates and wet weather deterred shoppers, the British Retail Consortium said. The data dampens speculation the Bank of England will need to keep raising interest rates.

Asia-Pacific

• No major economic data at this moment. Japan’s provisional trade statistics, core machinery orders, and monthly economic report will be released later today.

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