Global Scene

Dollar climbs before US inflation update

The dollar advanced on Wednesday ahead of US inflation data which may add to speculation that the Federal Reserve has finished cutting interest rates for now, dealers said.

In European trading, the euro dropped to 1.5416 dollars from 1.5473 in New York late on Tuesday.

The dollar rose to 105.40 yen from 104.71 yen. The foreign exchange market will digest US consumer price inflation data later Wednesday, and housing starts on Friday.

"Trade is rangebound as market players are adjusting their positions ahead of inflation figures and other data this week," said Yosuke Hosokawa, head of forex at Chuo Mitsui Trust Bank.

"If the figures are stronger-than-expected, it will confirm that the Fed's rates have bottomed," said Hosokawa.

But some market watchers said there was still room for further monetary loosening by the US central bank.

"It is still too risky to conclude that the recent set of economic data and comments from the Fed officials suggest a shift in the monetary policy bias at the Fed," Hachijuni Bank forex dealer Yuuya Koike said.

Despite interest rate cuts and tax rebates the US economy is still suffering, "which leaves some room for more credit easing," he said.

Dealers said the dollar gained support from a number of Fed officials voicing heightened concerns over building inflation pressures.

Hopes that the worst of the credit crisis may be over have driven the dollar higher against the euro over the past two weeks.

Fed chairman Ben Bernanke said on Tuesday that financial markets were still "far from normal" but had improved as a result of exceptional measures by the US and other central banks to increase liquidity .

The US central bank has slashed its key rate to 2.0 percent, down sharply from 5.25 percent last September, in a bid to boost the flagging US economy which has been hit by a housing slump and related credit crunch.

The British pound sank against the dollar on Wednesday after the Bank of England had warned that headline annual inflation could hit 3.6 percent this year. (AFP)

Asian economies holding up

Asia's strong economic growth will persist despite an ailing US economy as the region diversifies its export markets and a new breed of young and wealthy citizens drive consumption, investment bank Merrill Lynch said Wednesday.

Inflation is a bigger risk to the region than a slowdown induced by a recession in the United States, the world's biggest economy, said Timothy Bond, Merrill Lynch's chief Asia economist. Despite a global credit crunch resulting from a crisis in the US housing market, Asian economies expanded 9.5 percent and China grew 11.5 percent in the second half of last year, he said at a Merrill Lynch conference in Singapore.

In the first quarter of this year, the region is expected to grow a slower but still robust 9.0 percent, and China 10.5 percent, he said.

"I think we have a lot of evidence to support the decoupling view," he said, referring a view that Asian economies are now in a better position to withstand the impact of a US recession, unlike in the past.

Bond also noted that while Asian exports to the United States were flat last year, shipments of made-in-Asia goods to the rest of the world expanded 19 percent.

"I think the message here is that there is a lot of strength in the global economy despite some very clear headwinds in the US economy, and this is a region that exports to the world, not just the United States," he said.

Asian exports to Europe have been growing 25-28 percent annually due mainly to the stronger euro currency which makes Asian goods cheaper, he said, adding that intra-Asian trade has also increased.

"Europe has been the number one driver of Asian exports over the past few years, not the United States," Bond said.

Any slowdown in exports should be offset by an acceleration in consumption, powered by the emergence of younger and wealthier Asians who, unlike their parents, would like to spend their money, Merrill Lynch experts said. AFP

British unemployment unchanged at 5.2 percent

Britain's unemployment rate stood at 5.2 percent in the three months to March, but the claimant count rose in April for the third month in a row, official data showed on Wednesday.

Under the International Labour Organization measure of unemployment, the rate had also stood at 5.2 percent for the three months to December, the Office for National Statistics said. According to the British government's preferred measure of unemployment, the rate stood at 2.5 percent in April, the lowest level since April 1975 and unchanged from March.

The claimant count, meanwhile, rose by 7,200 to 806,300 people in April from March marking the biggest monthly gain since April 2006.

The ONS added that the March claimant count had been revised to show an increase of 3,600 people compared with the previous estimate of a 1,200 decline.

That means that the claimant count has now risen for three months in a row for the first time since April-June 2006. AFP

Bank of England warns of 3.6-percent inflation

The Bank of England warned on Wednesday that British inflation, which hit 3.0 percent last month, could spike to 3.6 percent this year owing to soaring energy and food prices.

The BoE also predicted in its latest quarterly report that the economy would slow sharply this year amid the spreading impact of the global credit crunch.

Central bank governor Mervyn King, speaking after publication of the report, hinted that the economy could slip into a technical recession which is defined as two quarters running of declining output. King said at a press conference that there could be an "odd quarter or two" of negative growth.

In the report, the BoE forecast that Britain's annualised gross domestic product (GDP) growth would dip towards 1.0 percent this year, before recovering at the start of 2009 when it would rise to around 2.4 percent.

In reaction, the British pound tumbled as low as 1.9365 dollars, before pulling back to 1.9397, down from 1.9421 late in New York on Tuesday.

The BoE last week held its key short-term interest rate at 5.0 percent as it balanced slower economic growth with growing inflationary pressures stemming from soaring commodity prices.

"As price increases feed through to household bills, they will lead to a squeeze on real take-home pay, which will slow consumer spending and output growth, perhaps sharply," King said. He added: "The credit cycle has turned. Commodity prices are rising. We are travelling along a bumpy road as the economy rebalances.

"Inflation will return to the target and growth will eventually recover to a sustainable rate. But we will need to be patient." Analysts said the news had killed off the chances of a BoE interest rate cut in June after a stream of data pointed towards higher inflation this week.

"We still think interest rates will eventually fall considerably further as the economy continues to weaken and inflation concerns finally fade," said Jonathan Loynes at Capital Economics. AFP

French inflation eases slightly

French inflation in April eased to 3.0 percent from a revised 3.1 percent in March on a 12-month basis, the statistics institute INSEE reported Wednesday.

The rate for March was originally given as 3.2 percent, a 17-year high driven by soaring food and energy costs.

Prices in April rose 0.3 percent from March.

Analysts said that while the improvement in the April figures was welcome, inflation remained a problem and was likely to come in above the government's 2008 target of 2.2 percent.

"It is a very slight easing which does not change the underlying trend there are inflation risks in France," said economist Nicolas Bouzou of the research group Asteres.

INSEE said energy costs continued to rise sharply, up 1.0 percent from March, with food increasing 0.7 percent.

Over the year, energy prices overall rose 12 percent with fuel alone up 15.1 percent in April, both slowing from 12.7 percent and 16.4 percent in March.

"The causes don't change... rising raw material costs account for about two thirds of French inflation," said Bouzou, adding that he expected inflation to run at between 2.5 and 3.5 percent over the next few quarters. AFP