• The dollar traded mixed on Wednesday. Investors worried that the EU/IMF loan package may not save Greece from default. Separately, the IMF raised its 2010 global growth forecast to 4.2% (vs. previously estimated 3.9%), the fastest pace since 2007, and warned that a failure of nations to contain soaring public debt might have severe consequences for the world economy. The S&P 500 index declined 1.23 to 1,205.94. The yen was little changed. The February Japanese LEI rose for a 12th straight month. Sterling was boosted by a larger-than-expected decline in UK unemployment and the Bank of England’s steady policy stance. BOE policy makers voted 9-0 to maintain their bond-purchase plan at £200 billion ($308 billion) in April and unanimously kept the benchmark interest rate at a record-low 0.50% because “the events of the past month had not been significant enough to substantially alter their views of the medium-term outlook for inflation and activity,” minutes of the April 7-8 BOE meeting released today showed. The Australian and Canadian dollars pared earlier gains as risk appetite declined.
• The EUR/USD fell for a fifth consecutive day as cost to insure Greece debt surged to a record. The pair has been trending lower since making a high in December. The EUR/USD broke its downtrend and made a short-term modest uptrend; thus, signaling a possible bottom. Still, the problem with Greece and other high debt EMU countries remains. The EUR/USD is also below its 50- and 100-day moving averages, indicating further declines. We have not changed our negative outlook on the pair, but a short covering rally is more likely.

Financial and Economic News and Comments

US & Canada

• Canada’s wholesale sales slipped 1.2% m/m to C$43.8 billion ($43.8 billion) in February, the first decline in four months, after a downwardly revised 2.4% m/m increase in January, according to figures from Statistics Canada. Wholesale inventories increased 0.1% m/m to C$51.1 billion in February, the first advance since November 2008. The inventories-to-sales ratio rose to 1.17 from January’s 1.15, the first rise since August 2009. Wholesale sales grew 8.5% y/y in February while wholesale inventories fell 10.4% y/y.

Europe

• UK jobless claims fell a more-than-expected 32,900 to 1.54 million in March after a revised 40,100 February drop that was larger than previously reported, data from the Office for National Statistics showed. The claimant count rate declined to 4.8% in March, the lowest since June 2009, from 4.9% the prior month. Unemployment based on International Labour Organization methods climbed 43,000 to 2.5 million in the three months through February, the highest level since 1994, and the ILO UK unemployment rate rose to 8.0% from 7.8% in the prior period. Average weekly earnings including bonuses grew 2.3% y/y in the three months through February after a downwardly revised 0.8% y/y in the three months through January. Average weekly pay excluding bonuses advanced 1.7% y/y in the quarter through February after an upwardly revised 1.5% y/y gain in the quarter through January.

Asia-Pacific

• Despite prolonged deflation, Japan’s economic growth seems sustainable. The Japanese leading economic indicators index, a measure of future economic activity, rose to 98.5 (vs. preliminarily reported 97.9) in February, a 12th consecutive monthly gain, from 97.3 in January, according to final February LEI data from the Cabinet Office. The coincident index, measuring present economic activity, advanced to 100.5 (vs. preliminarily reported 100.7), an 11th successive monthly rise, from January’s 100.3, registering the longest streak of gains since 1997.

• The Westpac-Melbourne Institute Australian LEI, a measure of future economic activity, increased 0.5% m/m in February to 257.8, the highest since July 2008, after an upwardly revised 0.4% m/m advance in January, Westpac Banking Corp. and the Melbourne Institute reported. The February LEI expanded at a 7.2% annualized rate. The coincident index, measuring current economic activity, increased to 247.9 in February from 247.8 a month earlier, and grew at a 3.6% annualized pace.

FX Strategy Update

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