Canada Keeps Rates Unchanged - 18.1.2012

US Dollar The dollar fell yesterday against most of its major counterparts and remained under pressure in Asian trading hours today on an improved investors’ sentiment after several favorable economic reports have been released in Europe and before the data from the United States is released later in the global day. According to preliminary estimations, industrial production in the largest economy increased in December by 0.5% after declining by 0.2% in the previous month. The dollar index fell below 81 from Friday’s 16-month high 81.78. However the reserve currency’s losses appeared to be limited this morning as the World Bank cut its global economic growth forecast for 2012 to 2.5% down from its June estimate of 3.6%. In particular the euro zone may contract 0.3%, compared with a previous estimate of a 1.8% gain and finally the US growth outlook was cut to 2.2% from 2.9%. Euro Yesterday the euro rose from 1.2648, touching 1.2809 against the greenback. Nevertheless, the single currency failed to accelerate the rally in Asian trading hours today, staying below 1.28 on a more pessimistic global growth forecast. At the same time the euro area economy is showing signs of a moderate recovery as German investor confidence jumped considerably in January. The ZEW Center for European Economic Research reported the index of economic expectations aimed at predicting economic activity over the next six months surged to minus 21.6 from minus 53.8 in December. Moreover borrowing costs of euro area nations continue falling, despite the recent credit rating cuts by Standard & Poor’s. Yesterday Spain raised 4.9 billion euros with average 12-month bills costs plunging to 2.049% from 4.05% in December and 18-month debt costs decreasing to 2.399% from 4.226% last month. Canadian Dollar Bank of Canada left its benchmark interest rate at 1% for the 11th straight time yesterday. The loonie, as the nation’s currency is nicknamed, touched yesterday its two-week high against the US counterpart – pair USD/CAD fell to 1.0111, but recovered slightly in the aftermath to 1.0150. In a statement the central bank said it expects the economy will rise in 2012, but with a slower pace than in 2011. According to the estimate the economy grew by 2.4% in 2011 and may rise by 2.0% in 2012. Inflation pressure is expected to remain moderate leaving room for further stimulating monetary policy implementation. As for Europe, the main reason of concerns nowadays, the Bank of Canada continues to "assume that the region’s authorities will take sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks."