US Dollar
European and US stocks were higher yesterday, supporting this morning the Japanese Nikkei index as German and French leaders said they’re certain Greece will remain in the euro zone. The S&P 500 rose yesterday by 1.35% in a three-day rally. The rise took place despite a relatively negative macroeconomic data was released yesterday in the USA. Retail sales unexpectedly stalled in August due to a lack of employment growth and a limited spending, which restrained demand, highlighting the risk the economy will stall. The unchanged reading followed a 0.3% increase in July, that was smaller than previously estimated, Commerce Department figures showed. Producer prices were also unchanged in August, decreasing the annual rate to 6.5% from 7.2%.
Today we also expect some important statistics to be released. According to preliminary estimations, reports may show that consumer prices increased by 0.2% in August from July, when the CPI rose by 0.5%. The so-called core measure, which excludes volatile food and fuel prices, may also have climbed by 0.2% for a second month. Annual figures therefore may stay unchanged at 3.6%. If official data meets expectations, the cost of living in the US rose at a slower pace in August amid declining energy prices. This totally matches the Fed’s chief Ben Bernanke predictions that “inflation is expected to moderate in the coming quarters.” Other reports today may show manufacturing contracted in the New York and Philadelphia regions this month, while industrial production was little changed nationwide in August. Figures from the Labor Department may show that initial jobless claims stay at a level that indicates limited improvement in the labor market. Jobless claims probably fell to 411000 last week from 414000 the prior week, economists forecast. The greenback strengthened yesterday against the Australian and Canadian currencies and the British pound, but weakened slightly against the Japanese yen and the euro.
Euro
The euro strengthened against the dollar for a third session yesterday after falling to a multi-month low (1.3495), but still the strength of the single currency seems limited. The upward pressure was due to hopes that Greece will receive another portion of international financial aid. French President Nicolas Sarkozy and German Chancellor Angela Merkel said yesterday they’re “convinced” that Greece will remain in the euro area after Greek Prime Minister George Papandreou committed to meet deficit-reduction targets, demanded as a condition for an international bailout. The two leaders also said that in order to ensure the stability of the euro zone, it is necessary to put into practice the decisions taken by euro zone leaders at a July 21 summit. The leaders then decided to increase the size of the euro zone’s current rescue fund, the European Financial Stability Facility and to allow to purchase bonds in the secondary market with the fund's resources. Earlier they had decided to widen the facility’s actual lending capacity to 440 billion euros.
On the other hand the European Commission President Jose Barroso said he was close to proposing options on joint euro-area bond sales. “Some of these options could be implemented within the terms of the current treaty; others would require treaty change.” As for government bonds, Spain plans to sell as much as a 4 billion-euro pack of bonds today. The Spanish auction comes two days after Italy’s borrowing costs surged at a bill sale and a lack of demand for government securities, which could send required risk-premium rates higher, may also add some pressure over the single currency. The euro was little changed against the dollar in Asian trading hours today and traded in a narrow range 1.3703-1.3757.
