Rational FX: US Producer Price Index come out slightly lower than expected [17/02/2011]

• The first piece of data out in the UK yesterday was the ILO unemployment rate which came out as expected and the same as previous, this piece of data had little effect on the market however we saw sterling weaken slightly against the dollar off the back of the bad Claimant Count figure which showed an increase of 2400 people claiming benefits in the UK.

• The second piece of information out in the UK yesterday was the BOE Quarterly inflationary report which informed us that inflation may not continue to rise as expected because CPI has been kept high from food and fuel prices at the moment, the report said they we may see hikes of inflation to highs of 5% this year, however Mervyn King has said the economy is to fragile for a rate hike at the moment. This report alongside Mervyn kings speech saw sterling fall against its major counterparts.

• In the US yesterday we saw Producer Price index MoM come out slightly lower than expected, however YoY came out higher than expected, meaning there is a rise in ‘Commodity inflation’  in US,  showing growth in the US economy , this may have added to the US dollar strength we saw against pound yesterday.

• Industrial Production MoM for the US came out lower than expected, this is a negative figure for US growth as it shows production from manufacturers and factories has slowed down. This bad figure is due to seasonal trends with snow stopping production. This added to the US dollar strength we saw after Mervyn King’s speech, this figure led to more risk aversion from traders moving into the dollar.

Today’s Market Movers

• There are no figures out in the UK today.

• The first piece of data out for the EU today is the Euro Zone current account which is a net flow of all transactions in and out of the economy, this is expected to come out slightly better than previous, meaning that the EU economy is slowly clawing back from its huge deficit , showing growth in the economy. This figure could see the Euro strengthen against its major counterparts as the Euro zone economy is showing signs of recovery.

• The second piece of data in the EU today is Consumer Confidence February which is expected to come out slightly better as well, this again shows a small sign of growth in the EU economy. This may also help see Euro strengthen across the board.

• In the US today we have Consumer Price Index YoY and MoM. MoM we are expected to see a slight decrease, however we can put this down to the terrible weather the United States has seen over the past month. YoY the figure is expected to come out at a slight increase from previous , Inflation is slowing rising in the US but seems to be under control , this good figure for US could lead to risk appetite in the market which would could see the dollar come off slightly as investors move in to risky stocks and currencies.

• Initial jobless claims for the US is expected to come out higher again, meaning there are more people making first time claims. This is not a good figure for the US as it will lead to slow growth in the US economy, we may see investors move back in the USD as they are sceptical for how strong the recovery is.

• Ben Bernanke, the FED’s Governor is set to make a press conference this evening. He will be discussing the currency economic situation in the US and talk about the Value of the Dollar. If he is seen to talk the economy up we could see risk appetite in the market leading to dollar weakness.