Producer prices grew by the fastest pace in 16 years but the growth of consumer prices fell short of expectations in the month of January. In fact, CPI dropped 0.7 percent, which was the sharpest plunge in a year - though the annual rate edged up to 2.2 percent. What does this mean for the outlook for UK interest rates? It is murkier than ever. For this reason, tomorrow's reports will be exceptionally important. It will be interesting to see if the Bank of England is still worried about inflationary pressures in their Quarterly Inflation Report. Employment could also weaken, with the labor market components of manufacturing and construction sector PMI declining sharply in the month of January.
Euro: Strongest Rally This Month
Pressures on the ECB to cut interest rates was eased as the ZEW Survey showed a surprising improvement in German Investor Confidence, and led to the biggest gain for the euro this month. Investor confidence beat expectations as it rebounded from a 15 year record low of minus 45 to minus 39.5. The resilience amongst European investors has stoked further speculation that the ECB will not look to cut rates in the near future as the German Finance Minister Peer Steinbrueck refuted growing speculation that President Jean-Claude Trichet will take a neutral stance on the ECB's monetary policy. The German Wholesale Price Index and Eurozone's Industrial Production figures are due for release tomorrow.
Commodity Currencies Fail to Benefit from Yen Rally
Despite the strong rally in the Japanese Yen crosses, the Australian and Canadian dollars failed to join the party. Commodity weakened as Australian business confidence deteriorated in the month of January. It seems that the Reserve Bank's commitment to continue raising interest rates and the slowdown in global growth is cutting into the optimism of Australian companies. We suspect that tomorrow's Australian consumer confidence numbers will suffer the same fate. New Zealand producer prices also declined last quarter as the growth of both input and output prices decelerated.
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- Wednesday, February 13 - 2008 at 02:55
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Kathy Lien, Chief Strategist, Daily FXWednesday, February 13 - 2008 at 02:55 UAE local time (GMT+4)
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