14.08.2008 11:55

FOREX. Wednesday summary

The yen rose to a 12-week high against the euro and its strongest level in two months versus the pound as investors in Japan reduced bets on higher-yielding assets abroad.
Japan's currency climbed to a two-year high against New Zealand's dollar and a four-month high versus Australia's dollar on speculation central banks will lower interest rates.

The pound fell to a 22-month low against the dollar after the Bank of England cut its growth forecast and unemployment increased the most in almost 16 years. The Bank of England forecast that if rates are left on hold, inflation will be below target in two years time, undermining the case for a rate hike and leaving the door open to slight monetary easing. Based on constant 5% Bank Rate, theBOE's August Inflation Report showed CPI clearly falling below 2% in two years' time. On market rate assumptions inflation also falls back to around 1.8% in two years time and continues to fall further in the third year. TheBOE's implied rate assumptions showed rates broadly on hold through 2009 before rising by almost 25 basis points from the second half of 2010. Overall, the report is less hawkish than many analysts' had expected.

``The global economy is definitely slowing down, and people are trying to avoid risks,'' said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. ``They're buying back the yen because the interest-rate differential between Japan and the rest of the world is going to shrink.''
``The euro zone is quickly plunging into a negative GDP environment right now,'' said Greg Salvaggio, a vice president of capital markets in Washington at Tempus Consulting, a currency-trading company. ``That's the backdrop that's leading investors to run to the exits on the euro.''
Europe's economy shrank 0.2 percent in the second quarter, following 0.7 percent growth in the previous three months, according to the median forecast of 40 economists.
``We are starting to see the beginning of the cyclical recovery of the dollar,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``It's mainly because global growth is slowing.''
The U.S. Dollar Index, which tracks the currency against six trading partners, yesterday touched 76.616, the highest level since Feb. 12. The index has advanced 3.9 percent since July 31. Last week's 3.3 percent gain was the biggest since January 2005.

Thursday European data starts at 0600GMT with the first of the slew of flash GDP and final HICP releases. German Q2 flash GDP and July final HICP, CPI data are due at 0600GMT and are expected to show flash GDP at -0.8% SA q/q. The final CPI is expected to edge higher, to 0.6 % m/m, 3.3% y/y, while final HICP is also seen edging higher to 0.6% m/m, 3.4% y/y. France data at 0645GMT is expected to show the Q2 GDP at +0.2% q/q, while Q2 non-farm payrolls are forecast to come in at 0.2% m/m, 1.4% y/y with monthly salaries at 0.7% m/m, 2.9% y/y. Eurozone Q2 flash GDP and July final HICP are due at 0900GMT when the flash GDP is forecast to come in at -0.2% q/q, +1.5% y/y. Final HICP is expected at -0.1% m/m, 4.1% y/y.
US data starts at 1230GMT with the weekly jobless claims and CPI data for July. Jobless claims are expected to slide 23,000 to 432,000 in the Aug. 9 week on the continued impact of the emergency benefit extension program. The CPI is expected to rise 0.4% in July on a further jump in energy prices. Core CPI is forecast to increase 0.2%.
August 4 week.