MARKET REPORT FRIDAY 14^th MARCH

Good Morning,

The US dollar plunged below 100.00 JPY for the first time since October 2005 and touched record lows against the Euro above 1.5650 yesterday amid continuing concerns that the US has entered a recession. Analysts believe that possible Central Bank intervention is being debated in response to the ailing dollar. The initial euphoria that greeted the Fed’s attempt to relieve credit markets has faded. As a result, stocks have turned lower and further interest rate cuts are expected by the Fed in March.

Yesterday’s US retail sales data fell unexpectedly in February by -0.6% against a market consensus forecast of +0.2%. The headline data was dragged down by a 1.9% drop in motor vehicle sales which have fallen by more than 1.5% in three of the last four months.

Looking at today’s data calendar, the focus for financial markets is likely to be on the US Consumer Price Index due at 12:30 GMT. Our economists expect headline consumer prices to increase by 0.2% m/m (4.2% y/y) in February. This number is lower than the rise in January of 0.3%. Several components contributed to this increase in the form of medical costs, lodging and tobacco where smaller increases are expected. However, upward pressures in the form of natural gas and food prices cannot be dismissed.

Also published today at 14:00 GMT is the preliminary March Michigan Consumer Sentiment Index. Market consensus expects this to edge down to 69.0 from 70.8 last month. The expected drop in consumer sentiment is largely attributed to the price of crude oil reaching an all-time high, financial markets remaining volatile and softening labour market conditions.

There are no data releases from the UK today, but next weeks MPC monetary minutes due on Wednesday will give investors a better indication on how many MPC members still fear that a credit crunch is squeezing the nation

Michael Ince

Michael Ince
Senior Trader
First Rate FX

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