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Video for November 18th, 2008 (4 min): Inflation Down in UK and US; Risk Aversion Returns in NY Afternoon Session

UK Consumer Prices Fall At Faster Than Expected Rate

UK consumer prices decelerated at a faster than expected pace in October. The country's CPI fell 0.2% on the month and cooled to an annual growth rate of 4.5%. The 0.7% drop in the monthly rate is the largest in 11 years. Prices were pushed down by lower oil, transport and food costs. Core inflation, which strips out energy and food, slowed to 1.9% from 2.2%. The Bank of England has been slashing interest rates in response to the recent financial turmoil and the UK slipping into recessionary conditions. With inflation no longer an overriding concern and the Bank warning about deflation, policy members are set to cut rates aggressively in its next meeting in December.

GBP/JPY - Pound Trades in Less Volatile Session

 

The Pound-Yen pair traded in a much smaller range today, running up against resistance at the 146.50 level for the 4^th time in 3 sessions. From that intra-day high a fall in US stocks fueled a 200 pip slide which brought the pair to 143.80 in NY afternoon trading. 

EUR/CHF - Euro Climbs vs Swiss Franc on Positive Close, But Falters in NY Trading 

 

Stocks in Europe, which were negative most of the European session, reversed course and finished the day positive. The Euro-Swiss Franc pair fell initially overnight, but then recovered as the European session turned to the NY session and US stocks opened higher. The pair tested the 1.52 level, but then faltered as US stocks fell back into the red around noontime.

US Producer Prices Fall Record 2.8%, but Core Prices Rise

Turning to the US, Prices paid to US producers plunged in October by a record 2.8%, and the annual rate slowed to 5.2% from 8.7% in September. The large decline comes as a result of commodity prices falling during the month, as countries around the world reduced demand for oil and other commodities in the face of weakening economic activity. The declines in raw materials prices did not seem to filter down to other goods however as core inflation which strips out those costs, rose 0.4% on the month and climbed to 4.4% in annual terms, the highest annual core rate since 1989.

US TIC Flows Show Strong Demand for US Long Term Securities

In a second release, it was shown that foreigners purchased 66.2 billion of long term US securities in September, almost a triple-fold increase compared to August. There was strong demand for US Treasuries and the increase in foreign holding of US debt helps to explain the Dollar's recent rally.

EUR/USD - Euro in Triangle Consolidation Pattern vs Dollar

 

The Euro-Dollar pair was coming to an important crossroad as it had consolidated in a triangle the last 4 sessions. The pair touched 1.27 today in the midst of risk appetite in early NY trading, but as US stocks faltered the Dollar gained on its safe-haven status. In NY afternoon trading the pair gave back all of its gains and was below 1.26 as of 3 PM EST.

USD/JPY - Dollar and Yen Trade in Sideways Range

 

The Dollar-Yen has been ranging sideways, with the Dollar rallying 120 pips from its intra-day low near the 96 level. However, with US stock giving up earlier gains, it brought the momentum back to the Yen's favor, maintaining the range we have seen this week. In testimony today before Congress, Fed Chairman Bernanke said he saw some improvements in credit markets but that lending in the US remains "far from normal." Bernanke testified that bank-injections under the aid program are helping to bring stability to the financial system, and reducing some of the pressure on banks to deleverage, two main steps towards restoring flows of new credit.

USD/CAD - Loonie Gives Up Gains as US Stock Rally Stalls and Reverses

 

The US Dollar-Canadian Dollar fell to 1.2180 in NY morning trading, as it looked evident that risk appetite might come back to the markets. That sentiment was short lived, and a slide in US stocks pushed the forex market back to a posture of risk aversion. In this pair, that favors the greenback, and the pair rose 160 pips from its low to trade near 1.2360 by 2 PM EST.

Tonight's and Tomorrow's Releases

Tonight, Ne Zealand will reveal its producer price index, while Australia posts its Leading Index. Japan releases its All Industrial Activity index. Overnight, the UK will release its Bank of England meeting minutes along with data on industrial orders.

Tomorrow, the US will release data on building permits, housing starts, and consumer and the Fed will post its Meeting minutes. Canada will unveil its leading index and a measure of international securities purchases.