U.S. Consumer Confidence Climbs More Than Estimated to a Three-Year High

Confidence among U.S. consumers increased in February to the highest level in three years as a drop in unemployment helped overcome concern over rising food and fuel costs. 

The Thomson Reuters/University of Michigan final index of sentiment climbed to 77.5, exceeding the median forecast of economists surveyed by Bloomberg News, from 74.2 in January, a report today showed. The Commerce Department said the economy grew less than previously estimated in the fourth quarter as state and local governments cut back on spending. 

The sentiment survey showed that for the first time in six years, households this month said they had heard more optimistic than pessimistic news on the economy, boosting the odds that consumer spending will keep bolstering the expansion. At the same time, a jump in fuel costs caused by the unrest in the Middle East threatens to keep the enthusiasm in check. 

“We’ve clearly seen a bounce in the confidence numbers coincide with the gains in financial markets and the pickup in the economy, particularly the improving labor market,” said Jim O’Sullivan, global chief economist at MF Global Inc. in New York. “It was a bit of a surprise given the geopolitical tensions.” 

Stocks extended earlier gains after the report. The Standard & Poor’s 500 Index rose 0.9 percent to 1,317.51 at 11:12 a.m. in New York. Treasury securities were little changed, leaving the yield on the benchmark 10-year note at 3.43 percent compared with 3.45 percent late yesterday.

Range of Estimates

The 59 estimates in the Bloomberg survey ranged from 74.8 to 78. The index averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009. This month’s reading was the highest since January 2008. 

Today’s report mirrors other consumer gauges. 

The Bloomberg Consumer Comfort Index, formerly the ABC News U.S. Weekly Consumer Comfort Index, climbed last week to the highest level since April 2008 as Americans grew less pessimistic about their finances. 

The gauge was minus 39.2 in the period to Feb. 20, compared with minus 43.4 the prior week, a report yesterday showed. Forty-nine percent of those polled held positive views on their financial situation, the most in a year. 

The comfort index often tracks changes in prices Americans pay at the gas pump, whereas changes in the stock prices have more of an influence on the Michigan index, according to economists. Households with yearly incomes of $75,000 or more accounted for the entire jump in confidence last month, today’s report showed.

Other Gauges

The Conference Board’s index of confidence increased to 70.4, the highest since February 2008, from 64.8 the prior month, according to Feb. 22 figures from the New York-based private research group. 

A report from the Commerce Department today showed the economy grew at a 2.8 percent annual rate in the fourth quarter, down from a prior estimate of 3.2 percent. The world’s largest economy expanded at a 2.6 percent pace in the third quarter. 

The sentiment survey’s current conditions gauge, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, increased to 86.9 from 81.8 the prior month. 

Recent equity market performance may have played a part in boosting peoples’ attitudes. The S&P 500 Index advanced 3.9 percent this year through yesterday, extending gains from 2010. 

Unemployment Drops 

While employers added a fewer-than-forecast 36,000 jobs to payrolls in January, the unemployment rate unexpectedly fell to 9 percent, the lowest since April 2009, according to Labor Department figures released Feb. 4. Unemployment dropped to 9.4 percent in December from 9.8 percent the previous month. 

The index of consumer expectations six months from now, which more closely projects the direction of consumer spending, increased to 71.6 from 69.3. 

Macy’s Inc., the second-biggest U.S. department-store chain, is among companies counting on shoppers to keep spending. The Cincinnati-based retailer this week reported earnings that beat analysts’ estimates as it controlled costs and sold exclusive holiday gifts. 

“We are entering the year with building momentum, which gives us confidence that we should have another strong year,” Karen Hoguet, chief financial officer, said on a conference call with investors on Feb. 22. 

Consumers in the confidence survey said they expect an inflation rate of 3.4 percent over the next 12 months, the same as in January. Over the next five years, the period tracked by Federal Reserve policy makers, Americans surveyed said they expect prices will climb 2.9 percent, also the same as last month. 

Rising gasoline prices may have restrained a further increase in sentiment. The average price of a gallon of regular gasoline at the pump was $3.29 yesterday, the highest level since October 2008, as mounting tension in the Middle East and North Africa drove up the cost of crude oil. 

Source: Bloomberg By Timothy R. Homan

Read More......

Euro Gains as Oil Surge Spurs Bets ECB to Raise Interest Rates

The euro gained for the first time in three days against the dollar on speculation rising fuel costs will put further pressure on European Central Bank policy makers to combat inflation with higher interest rates. 

The single currency climbed to a two week-high versus its U.S. counterpart also gained versus the yen and Swiss franc. The Dollar Index snapped two days of advances before a report economists said will show sales of previously owned homes in the U.S. dropped. Oil prices approached a two-year high amid intensifying violence in Libya. The pound strengthened versus the dollar and euro as minutes of the Bank of England’s Feb. 10 meeting showed three out of nine policy makers voted for an increase in rates. 

“The market is focusing more on prospects for higher interest rates and this speculation should offer further relief for the European unit,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “The Federal Reserve’s position is very clear; the U.S. outlook is still uncertain and they don’t want to raise rates too soon.” 

The euro rose 0.6 percent to $1.3737 as of 7:37 a.m. in New York, after appreciating to $1.3744, the strongest since Feb. 9. The single European currency advanced 0.7 percent to 113.74 yen. The dollar was at 82.78 yen, from 82.77 yen yesterday, when it reached 82.53, its weakest since Feb. 10. 

ECB officials will “inevitably” have to “rebalance our monetary policy stance,” with the 17-nation euro-area economy strengthening and inflation in breach of the central bank’s 2 percent limit, council member Yves Mersch said yesterday, without giving a time frame. Policy makers will take the decisions necessary to maintain price stability, ECB President Jean-Claude Trichet said in Frankfurt today.

‘Turn Hawkish’

“As policy makers turn hawkish, I get a sense they are getting ready to change their policy stance next week,” said Naoto Minatogawa, a currency analyst at Himawari Securities Inc. in Tokyo. “The euro has been supported.” 

Futures show traders added to bets for higher borrowing costs. The implied yield on the three-month Euribor futures contract for December rose to 1.97 percent today from 1.99 percent yesterday and 1.88 percent on Feb. 16. Futures on the CME Group Inc. exchange show a 27 percent chance Fed policy makers will boost their main rate to 0.5 percent in December, down from 32 percent a week ago. 

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, fell 0.4 percent to 77.431.

House Purchases

U.S. house purchases decreased 1.1 percent from December to a 5.22 million annual rate, according to the median forecast of 73 economists surveyed by Bloomberg News. A 13-year-low 4.91 million existing houses sold in 2010. The National Association of Realtors’ data is due at 10 a.m. in Washington, with economists’ estimates ranging from 4.86 million to 5.5 million after December’s 5.28 million pace. 

German Chancellor Angela Merkel signaled yesterday that European Union leaders may be ready to renegotiate the terms of Greece’s bailout as part of a broader package to shore up confidence in the euro.

“There certainly is a discussion about whether to consider extending the running time of the Greek program,” Merkel said, noting that last year’s aid plan for Greece was limited to three years while Ireland’s bailout package, agreed last November, runs for seven years. “It’s one point that’s on the table.’

‘Civil War’

Continued protests “will lead to civil war,” Libyan leader Muammar Qaddafi said yesterday in Tripoli. The nation holds Africa’s largest crude reserves. Qaddafi’s crackdown on a week-long uprising has already left more than 200 dead, according to Human Rights Watch. 

Crude for April delivery rose as much as 0.9 percent in electronic trading on the New York Mercantile Exchange, after climbing yesterday to the highest since October 2008. 

Sterling gained 0.7 percent to $1.6246 and was little changed at 84.53 pence per euro, from 84.59 pence yesterday. 

Spencer Dale joined Andrew Sentance and Martin Weale in voting for higher rates as a growing number of officials said the case for tightening policy had “grown in strength,” minutes released in London today showed.

The pound may strengthen to $1.65 during the next few weeks as speculation mounts that the Bank of England will raise its main rate from a record low 0.5 percent, before weakening on concern that higher borrowing costs will crimp economic growth, according to Hans-Guenter Redeker, head of global currency strategy at BNP Paribas SA in London.

Higher Rates

“We will have to think about the sustainability of higher interest rates in an environment where the economy is highly leveraged,” Redeker said in an interview. “Credit is still weak.” Sterling support “may last several weeks,” he said. 

The New Zealand dollar, known as the kiwi, strengthened after Moody’s Investors Service said it sees no immediate impact from the Christchurch earthquake on the nation’s Aaa credit rating. 

“We’ve seen the kiwi bounce as the market was a little bit carried away in pricing an immediate rate cut,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. “There are record high commodity prices in New Zealand at the moment and the Reserve Bank puts a lot of weight on commodity prices and the terms of trade boom, so it’s unlikely that we’ll see a cut.” 

The earthquake killed at least 75 people and the disaster is likely to cost reinsurers around NZ$5 billion ($3.7 billion), Prime Minister John Key said. 

The kiwi was little changed at 74.63 U.S. cents after strengthening to 75.13 U.S. cents. It declined yesterday to its weakest level against the U.S. currency since December. The New Zealand dollar was also little changed at 61.79 yen. 

Source: Bloomberg By Lukanyo Mnyanda and Yoshiaki Nohara 

Read More......

BOJ upbeat on economy, exports show seasonal dip

(Reuters) - Bank of Japan Deputy Governor Hirohide Yamaguchi said the country's economy will soon pull out of its torpor, despite a near-stalling of export growth in January, but warned that risks remain from rising commodity prices.

Annual export growth slowed to its weakest pace in more than a year in January as shipments to China lost steam before the Lunar New Year, but economists said the central bank's forecast for an export-led recovery remained intact as underlying demand overseas was still strong.

"Exports were weaker than expected but the overall trade data does not alter the scenario that the economy is emerging from a lull in the January-March quarter," said Yoshimasa Maruyama, economist at Itochu Corporation in Tokyo.

Yamaguchi, a career central banker and a close aide to Governor Masaaki Shirakawa, said Japan was making progress toward an end to deflation with annual rises in consumer prices seen accelerating toward the year starting in April 2012.

Still, the government and the central bank are unlikely to draw much comfort as turmoil in Libya and a recent spike in commodity prices cloud the outlook. Yamaguchi also warned against excessive optimism over the U.S. economy.

"Exports are resuming an uptrend," Yamaguchi said in a speech to business executives in Aomori, northern Japan, on Wednesday. "I expect Japan's economy to soon emerge from a lull and resume a moderate recovery path on strong overseas growth."

UNCHANGED ASSESSMENT

His comments are in line with the BOJ's assessment last week that Japan's economy was gradually emerging from a slowdown and heading toward a moderate recovery.

Yamaguchi warned that there was a chance that financial markets' optimistic view on the U.S. economy may be reversed given the huge balance sheet adjustment it needs to go through.

His comments "suggest optimism about the economy from a short-term viewpoint but he rather stressed downside risks for the medium-term, especially about the U.S. economy," said Seiji Shiraishi, chief economist at HSBC Securities Japan.

"The BOJ is examining how such risks will develop. While the economic cycle is recovering, if downside risks materialize, there is a possibility the BOJ will expand its easing steps," Shiraishi said.

The central bank is closely monitoring oil prices, which have soared due to spreading unrest in the Middle East and North Africa, but it sees no reason yet to alter its forecasts, Yamaguchi later told reporters.

Should this trend continue, it could stymie monetary policy because it could both harm growth and possibly hasten an exit from deflation.

STANDING PAT

"Commodity-driven inflation exacerbates terms of trade and weighs on economy, but if commodity price hikes don't accelerate that would keep core consumer prices from approaching levels that the BOJ sees as desirable," said Azusa Kato, economist at BNP Paribas in Tokyo.

"The BOJ will stand pat on monetary policy for foreseeable future, regardless of commodity prices."
Japan's exports in January rose 1.4 percent from a year earlier, the lowest growth since November 2009 and much slower than the median forecast for a 7.4 percent annual increase, Finance Ministry data showed.

Shipments to China, Japan's largest trading partner, increased 1.0 percent from a year earlier, a small fraction of the 20.1 percent annual increase in the previous month and also the smallest increase since October 2009.
The slowdown was mainly due to the Lunar New Year holidays in the first week of February, which are observed in China and some other Asian countries including South Korea, a ministry official said.

In comparison, South Korea's exports to China rose 15.4 percent in January. While the number, reported earlier this month, was far stronger than Japan's, it was also the lowest growth since October 2009 and well below the more than 40 percent overall growth.

"I think this is a temporary phenomenon," said Yoshikiyo Shimamine, chief economist at Dai-Ichi Life Research Institute in Tokyo.

"Exports of microchips and other electronics devices to Asia slowed substantially, but the inventory situation is improving. U.S. consumer sentiment seems to be picking up as well."

The trade balance showed a deficit of 471.4 billion yen ($5.67 billion), its first deficit in 22 months. That compared with the median forecast for a 60.0 billion yen surplus.

The purchasing managers index for January lends some support to optimism over exports, showing new export orders grew for the first time in four months.

The BOJ last week raised its assessment of the economy, signaling that no imminent monetary easing is on the horizon.

Still, the central bank is set to maintain its ultra-easy policy and keep interest rates in a range of zero to 0.1 percent unless a rise in consumer prices of around 1 percent seems likely.

The BOJ last year cut interest rates effectively to zero and set up a fund to buy assets ranging from government bonds to private debt, aiming to help the economy and end deflation.
(Writing by Stanley White; Editing by Alex Richardson and Richard Borsuk)

Source: Reuters By Leika Kihara and Tetsushi Kajimoto

Read More......

Oil-Price Swings Double as Unrest Spreads Before Saudi Talks

Oil-price swings have doubled this year as unrest spreads through the Middle East, source of one- third of global crude supply, hampering producer and consumer efforts to stabilize the world’s biggest commodity market. 

As officials from more than 90 nations including Saudi Arabian Oil Minister Ali al-Naimi and U.S. Deputy Energy Secretary Daniel Poneman gather in Riyadh tomorrow to seek ways of curbing fluctuations, oil’s 20-day historical volatility has risen to 29.4, according to data compiled by Bloomberg. It was at 12.6, an all-time low, at the end of December. U.S. futures for April jumped as much as 4.5 percent today as violence spread in Libya, holder of Africa’s biggest crude reserves. 

Oil has risen to a two-year high, with Brent crude prices in London exceeding $105 a barrel today, as the Middle East turmoil stoked concern that shipments from the region may be disrupted. Libyan leader Muammar Qaddafi’s son warned yesterday that a civil war would risk the country’s oil wealth as security forces attacked protesters, killing more than 200, according to New York-based Human Rights Watch. Nations including Iran and Bahrain are cracking down on opposition groups demanding change amid upheaval that’s toppled leaders in Egypt and Tunisia. 

“Prices gyrate wildly with each new headline,” said Mike Fitzpatrick, Energy Overview editor in New York, and a former futures broker at MF Global. “If more moderate and friendly-to- the-West governments like Jordan or Bahrain topple, $100 may not be so ridiculous as it seemed only a few days ago.”

Libyan Oil Production

Shokri Ghanem, chairman of Libya’s National Oil Corp., said he didn’t know if unrest sweeping the North African nation has affected its crude output. “Until now, we don’t have any information,” he said in a brief telephone interview from the country’s capital, Tripoli. An official at Milan-based Eni SpA, the biggest foreign producer in Libya, said today that operations in the country were normal. Libya pumps 1.59 million barrels a day, according to Bloomberg estimates, the biggest North African producer to experience mass protests so far. 

In response to rising prices, OPEC is already pumping the most oil since agreeing to production cuts in December 2008. U.S. inventories are 6.4 percent higher than their five-year average, storing up the possibility of a price plunge once the winter-demand period ends.

Riyadh Meeting

Representatives meeting in the Saudi capital tomorrow will include producers in the 12-nation Organization of Petroleum Exporting Countries, the 28 consuming countries of the International Energy Agency, as well as China, India and Brazil. The International Energy Forum meeting will approve a charter aimed at finding mechanisms to stabilize energy markets and improve the collection and publication of supply, demand and price data. 

“The signing of the new charter comes at the right time and place in conditions that witness some fluctuation in energy markets,” al-Naimi said in a Feb. 18 statement e-mailed by the Saudi Ministry of Petroleum and Mineral Resources. 

OPEC’s next policy-setting meeting is scheduled for early June, in Vienna. The group has ignored output quotas as prices have soared, pumping about 2 million barrels a day, or 8 percent, more than the official limit for 11 of its members.

Oil Surges

Crude for April delivery advanced as much as $4.04 to $93.75 a barrel in electronic trading on the New York Mercantile Exchange while April Brent on the London-based ICE Futures Europe surged as much as 2.5 percent to $105.08, the highest for a contract closest to expiration since Sept. 22, 2008. 

The Paris-based IEA raised its forecast for 2011 global oil demand for a fifth straight month in a Feb. 10 report, as consumption recovers from the recession. 

“The current wave of geopolitical uncertainty is affecting both expectations of potential volatility in immediate oil flows and the longer-term implications of a more uncertain investment climate,” said Paul Horsnell, London-based head of commodities research at Barclays Capital. 

Price swings are likely to be in focus at the International Petroleum Week conference in London this week, attended by oil traders and brokers from companies such as BP Plc, ICAP Plc, Vitol Group and state-run Saudi Aramco.

London’s IP Week

The mood in London will probably be “positive,” with “a lot of talk of OPEC capacity and the Middle East violence” said Andrey Kryuchenkov, a London-based analyst at VTB Capital. 

Exporters are concerned there may still be a drop in prices amid rising U.S. inventories and the onset of spring in the northern hemisphere, when fuel consumption typically ebbs. 

“The lesson is that until the market is confident that risks have subsided, volatility will remain high,” Lawrence Eagles, head of commodities research at JPMorgan & Chase Co., said in a note. “To this extent, the market is happy to absorb the extra barrels that are coming from OPEC, despite the beginning of seasonally lower demand for crude and heating fuels.” 

The widening discount of U.S. West Texas Intermediate crude to North Sea Brent crude will be another “key theme” in discussions in London, Horsnell said. “It is likely to be difficult to get too far away from the gyrations in WTI prices, and the severe stress that the Midwest oil market is under.” 

WTI crude traded as much as $16 a barrel less than Brent last week, comparing April contracts for both grades, as the U.S. futures benchmark remained under pressure from a supply glut at its delivery point in Cushing, Oklahoma. 

The 20-day historic volatility index measures how much crude fluctuates around its average price during that period. OPEC’s 12 members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. 

Source: Bloomberg By Grant Smith and Lananh Nguyen 

Read More......

Home Sales Probably Fell, Goods Orders Rose as Factories Head U.S. Economy

Home sales probably fell in January, while orders for long-lasting goods climbed, a reminder that housing lags behind manufacturing as the U.S. recovery strengthens, economists said before reports this week. 

Combined purchases of new and existing homes fell 2 percent to a 5.5 million annual pace, according to the median forecast of economists surveyed by Bloomberg News. Durable-goods bookings increased 3 percent last month, the survey showed. 

Unemployment hovering near 9 percent means foreclosures may keep rising, adding to a glut of inventory that is depressing property values, hurting builders and homeowners. Growing exports, combined with increasing profits and tax incentives signed into law by President Barack Obama in December, will probably keep orders flowing to companies like Caterpillar Inc. 

“Housing is basically flat on its back, and manufacturing is growing very fast, probably the biggest contrast in the economy,” said Nigel Gault, chief U.S. economist at IHS Global Insight Inc. in Lexington, Massachusetts. Home prices are still on the way down.” 

Sales of existing homes fell 1.5 percent to a 5.2 million annual pace, economists surveyed by Bloomberg forecast the National Association of Realtors will report Feb. 23. Commerce Department figures the following day may show demand for new homes dropped 8.8 percent to a 300,000 rate, the survey showed. Purchases reached a record low 274,000 pace in August.

More Orders

Orders for durable goods rose in January after a 2.3 percent decline the prior month, economists forecast the Commerce Department will report Feb. 24. Excluding demand for transportation, which is often volatile, bookings may have climbed for a third month. 

The business spending that helped lead the economy out of recession may gain a second wind from a new tax provision that was part of Obama’s compromise with congressional Republicans. Companies will be able to depreciate 100 percent of investments in capital equipment this year. 

Demand from abroad is also growing. Exports in December rose to the highest level since July 2008.

Caterpillar, the world’s largest maker of construction equipment, is projecting 2011 sales will top $50 billion after coming in at $42.6 billion last year. 

“Sales are improving in every region, and are at or near records in the developing world,” Mike DeWalt, director of investor relations at Caterpillar, said on a Jan. 27 teleconference. “Over the past quarter, we’ve become somewhat more positive about economic growth in the developed economies of North America, Europe, and Japan.”

Fed Views

Federal Reserve policy makers noted the dichotomy in their Jan. 26 policy statement. 

“Business spending on equipment and software is rising,” they said. At the same time, they said housing remained “depressed” and falling home values continued to stymie the consumer spending that accounts for about 70 percent of the world’s largest economy. 

Homebuilder shares have underperformed the broader stock market since the middle of last year. The Standard & Poor’s Supercomposite Homebuilder index of 12 builders has gained 24 percent since June 30, compared with a 30 percent increase for the S&P 500 Index. The S&P Machinery Supercomposite Index is up 58% during that time. 

The S&P/Case-Shiller index of home values in 20 cities fell 2.4 percent in December from the same month in 2009, the biggest 12-month decrease in a year, economists surveyed forecast the group will say Feb. 22.

Industry projections reinforce the concern about housing. The number of homes receiving a foreclosure notice will climb about 20 percent in 2011, reaching a peak for the housing crisis, RealtyTrac Inc., an Irvine, California-based data seller, said last month.

Underwater Mortgages

At the end of last year about 15.7 million mortgaged single-family homes, or 27 percent, were worth less than the amount of loans outstanding, according to Zillow Inc., a Seattle-based real-estate information company. It was the highest share in data going back to the first quarter of 2009. 

Higher borrowing costs may further hurt sales. The average rate on 30-year fixed mortgages exceeded 5 percent for a second week in the period ended Feb. 11, the first time that’s happened since April, the Mortgage Bankers Association said last week. Rates have climbed from a record low of 4.21 percent in October. 

While consumer confidence has been climbing, it remains below pre-recession levels. The Conference Board’s sentiment index decreased to 65 this month from a revised 65.6 in January that was the highest since March 2008, economists forecast the New York-based private research group will report on Feb. 22. 

The Reuters/University of Michigan final confidence index for February may rise to 75.4 from a preliminary reading of 75.1, and 74.2 at the end of January, economists forecast the group will report on Feb. 25. 

Lastly this week, the second report on gross domestic product for the fourth quarter, due Feb. 25, may show the economy grew at a 3.3 percent rate, faster than the 3.2 percent originally estimated, according to the survey median.

Bloomberg Survey

================================================================
==
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
================================================================
==
Case Shiller Monthly MO   2/22      Dec.     -0.5%     -0.5%
Case Shiller Monthly YO   2/22      Dec.     -1.6%     -2.4%
Case Shiller Monthly In   2/22      Dec.     143.9     143.3
Case Shiller Quarterly    2/22       4Q      -1.5%     -3.5%
Case Shiller Quarterly    2/22       4Q      135.5     132.6
Consumer Conf Index       2/22      Feb.      65.6      65.0
Exist Homes Mlns          2/23      Jan.      5.28      5.20
Exist Homes MOM%          2/23      Jan.     12.3%     -1.5%
Durables Orders MOM%      2/24      Jan.     -2.3%      3.0%
Durables Ex-Trans MOM%    2/24      Jan.      0.8%      0.5%
Cap Goods Core MOM%       2/24      Jan.      1.9%     -1.0%
Initial Claims ,000’s     2/24     19-Feb     410       405
Cont. Claims ,000’s       2/24     12-Feb     3911      3880
BCCI                      2/24    Feb. 20     -43       n/a
New Home Sales ,000’s     2/24      Jan.      329       300
New Home Sales MOM%       2/24      Jan.     17.5%     -8.8%
GDP Annual QOQ%           2/25      4Q S      3.2%      3.3%
Personal Consump. QOQ%    2/25      4Q S      4.4%      4.2%
GDP Prices QOQ%           2/25      4Q S      0.3%      0.3%
Core PCE Prices QOQ%      2/25      4Q S      0.4%      0.4%
U of Mich Conf. Index     2/25     Feb. F     75.1      75.4
================================================================

Source: Bloomberg By Bob Willis

Read More......

All Big 5 Currency was moving up Caused By Good Indicator Result

On this week, i am gonna make a summary of 5 currency mover instead of giving a prediction. If we look detail information especially for fundamental factors, some of indicators that give big influence for currency moving whether are below:

• Retail sales m/m for NZD was going down from previous (1.2%) to actual (-1.1%)
• Prelim GDP q/q for JPY was also down from previous (0.8%) to actual (-0.3%)
• Home Loans m/m for AUD was better than forecast which up about 2.1% (actual)
• German prelim GDP q/q dropped from previous (0.7%) to actual (0.4%)
• CPI for GBP increased slightly from 3.7% to 4%
• German ZEW economic sentiment dropped from forecast 20.1% to actual 15.7%
• Claimant Count Change still bad about 2.4K
• Current Account for EUR dropped from previous -10.5B to actual -13.3B
• Retail Sales m/m for GBP showed good result from previous (-1.4%) to actual (1.9%)  

All these above indicators will move toward USD currency. As a result, in this week all five currency showed a good sign, it was because of good indicator result.

• GBP/USD was increasing from 1.6064 to 1.6244 about 220 point

• EUR/USD raised from 1.3506 to 1.3683 point, it was about 183 point

• AUD/USD from 1.0006 to 1.0142 point, raised about 144 point

• USD/JPY for this currency, the difference was just a bit from 83.45 to 83.10 point

• USD/CHF had showed good currency from 0.9739 to 0.9455 point, the gap was about 300 point

In conclusion, the fundamental analysis is taking a big part of making a right decision instead of technical analysis. By combining two analysis, i hope that the decision maker can take in a right moment to buy or sell currency.

Read More......

Euro Rises After Bini Smaghi Says ECB May Raise Rates as Inflation Climbs

The euro reached a one-week high against the dollar after European Central Bank Executive Board Member Lorenzo Bini Smaghi said the bank may need to raise interest rates as global inflation pressures mount. 

The shared currency erased earlier losses that followed data showing producer prices in Germany rose 1.2 percent, faster than forecast. The pound remained higher against the euro and the dollar amid speculation that inflation may soon force Bank of England policy makers to raise interest rates. 

“Yield plays are and have been the main focus of the foreign-exchange markets,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “These guys are ratcheting up their rhetoric and are clearly concerned about what weakness in currencies can do to imported inflation.” 

The euro rose 0.1 percent to $1.3627 at 9:10 a.m. in New York and touched $1.3646, the highest level since Feb. 10. Earlier it dropped as low as $1.3546. The common currency gained 0.3 percent to 113.69 yen, from 113.37 yesterday. The dollar was little changed at 83.34 yen, compared with 83.31. 

“As the economy gradually recovers and global inflationary pressures arise, the degree of accommodation of monetary policy has to be monitored and, if needed, corrected,” Bini Smaghi said in an interview with daily newsletter Bloomberg Brief: Economics. Commodity-price increases will “have an unavoidable impact” and “it is a key challenge for monetary policy to avoid spillovers and maintain inflation expectations in check,” he said. “This requires the ability to take pre-emptive actions if needed.”

Fastest Pace

Bini Smaghi’s comments suggested officials are becoming more concerned about inflation, which has already breached the ECB’s 2 percent limit and is running at the fastest pace in more than two years. Companies are facing stronger input-price pressures, and forecasters in an ECB survey this month raised their longer-term inflation expectations to 2 percent. 

The greenback has declined this week versus 14 of 16 major counterparts as minutes from the Reserve’s January meeting showed the central bank was dissatisfied with job growth and would continue monetary stimulus. Policy makers under Fed Chairman Ben S. Bernanke have held its benchmark interest rate at zero to 0.25 percent since December 2008, and have said it will remain near zero for “an extended period.” 

The ECB has kept its key rate at 1 percent since May 2009, helping the euro region haul itself out of recession. 

Bini Smaghi, who make his remarks in an interview conducted by e-mail on Feb. 16, said it’s “essential” to continue to anchor inflation expectations.

‘Going Long Euro’

“You juxtapose that with what Bernanke is saying about rates in the U.S., that they’re going to remain low for a while, and you gain more on your interest payments by going long euro versus dollar,” said Tim O’Sullivan, chief trader at FOREX.com, a unit of the online currency trading company Gain Capital in Bedminster, New Jersey. A long position is a bet a currency will strengthen. 

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six of major U.S. trading partners, fell for a fourth day, declining 0.2 percent to 77.839. It closed at 78.460 on Feb. 11. 

The euro dropped 0.5 percent over the past week, according to Bloomberg Correlation-Weighted Currency Indexes, a measure of 10 developed-nation currencies. The dollar lost 1.2 percent, while the Swiss franc gained 1.5 percent. 

Source: Bloomberg By Allison Bennett and Catarina Saraiva

Read More......

Bernanke worries about cash bubble

NEW YORK (CNNMoney) -- Federal Reserve Chairman Ben Bernanke said Friday that unbalanced flows of money between nations is again posing a risk to the global economy and financial stability.

Speaking in Paris to a Bank of France conference, the Fed chairman said the uneven flow of funds into the United States from 2003 to 2007 was one of the key factors that led to the meltdown in financial markets in 2008.

He did not say the current flow of capital poses a threat of that magnitude. But he warned that while the global financial crisis is receding, "capital flows are once again posing some notable challenges for international macroeconomic and financial stability."

He did not specify specific nations by name in his brief remarks, but he appeared to be referring to the continued large investment in U.S. assets by China.

   

He argued that countries with large trade surpluses must do more to let their exchange rates be set by markets rather than intervening to keep their currencies low. He added that nations with large trade gaps must increase national savings by cutting large budget deficits.

But Bernanke said the collapse that followed the inflating of the housing bubble was not the fault of countries that flooded the United States with cash. 

Instead, he blamed the United States, saying "the primary cause of the breakdown was the poor performance of the financial system and financial regulation in the country receiving the capital inflows, not the inflows themselves."

Bernanke did defend the Fed's controversial program to buy $600 billion in U.S. bonds, known as quantitative easing. Some argue that the purchases, dubbed QE2 since it is the second round since the onset of the financial crisis, is feeding rising global inflation.

Bernanke argued that the U.S. economy still needed more support and that the inflation pressure was coming from countries that are keeping their currencies undervalued rather than from the Fed's efforts.

"Resurgent demand in the emerging markets has contributed significantly to the sharp recent run-up in global commodity prices," he said. "More generally, the maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable."

Source: CNNMoney By Chris Isidore 

Read More......

BOE King: World Recovery Weak If Imbalances Not Tackled

LONDON (MNI) - Bank of England Governor Mervyn King warned that global imbalances have to be addressed or the world's economic recvoery will be weak and another financial crisis could be triggered.

In remarks at a Bank of France event King said global imbalances had been one of the causes of the financial crisis and he urged the G20 to tackle them. 

"Global imbalances contributed to the financial crisis and a rebalancing of global demand is the key to a sustainable recovery," King states in the text of his contribution to the event in Paris. 

"If we, collectively, do not deal with these problems at best we will have a weak world recovery and at worst we will sow the seeds of the next financial crisis. It is in our hands to avoid both those outcomes," he said.

King said the world economy remains vulnerable to the risks associated with imbalances and he said talks should focus on the right speed of adjustment. 

The BOE Governor was downbeat about the pace of progress so far on addressing the imbalances by advanced economies. 

"What is needed now is a 'grand bargain' among the major players in the world economy. A bargain that recognises the benefits of compromise on the real path of economic adjustment in order to avoid the damaging consequences of a move towards protectionism," he said. 

"A natural forum in which to strike a bargain is the G20 Framework for Strong, Sustainable and Balanced Growth. So far, the process has failed to achieve a move to a better outcome," he added. 

Source: MarketNews.com

Read More......

Euro Strengthens on Increases in German Confidence, New York Manufacturing

The euro advanced versus most of its major counterparts as reports showed New York manufacturing accelerated faster than forecast this month and German investor confidence increased. 

The yen fell against all of its 16 major peers as another report showed U.S. retail sales rose 0.3 percent in January, less than forecast. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, increased to 15.7, from 15.4 in January, a fourth monthly gain. 

“Manufacturing is the one bright spot in the economy,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said of the U.S. reports. “There’s a question mark about whether that’s a clean read on spending because of the storms.” 

The euro appreciated 0.3 percent to $1.3532 at 8:57 a.m. in New York, from $1.3489 yesterday. Earlier it rose as much as 0.5 percent to $1.3551. The dollar gained 0.5 percent to 83.73 yen, from 83.32. 

The 17-member currency has gained 1.1 percent this year, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The yen has dropped 3.6 percent, the Swiss franc has slumped 4.2 percent and the dollar has slipped 0.2 percent. 

The euro may fall to a four-week low against the dollar after it slid below support at about $1.3494, according to Okasan Securities Co., citing trading patterns.

Head-and-Shoulders

The $1.3494 level represents a so-called neckline of a head-and-shoulders formed by the “left shoulder” on Jan. 27, the “head” on Feb. 2 and the “right shoulder” on Feb. 9, said Tsutomu Soma, a bond and currency dealer at Okasan in Tokyo. 

The breach of the neckline connecting the base of the three peaks signals the reversal of a trend and indicates the euro may drop to $1.3364, a 50 percent Fibonacci retracement of the currency’s rise from its Jan. 10 low, he said. 

The Swiss franc weakened against the euro on reduced demand for safety, declining 0.3 percent to 1.3118, from 1.3084 yesterday. 

The Federal Reserve Bank of New York’s general economic index rose to 15.4 from 11.9 in January. Economists projected an increase to 15, based on the median forecast in a Bloomberg News survey. Readings greater than zero signal expansion in the so- called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut.

Treasury Yields

Two-year Treasury note yields reached 0.88 percent, the highest level in more than eight months, before trading little changed at 0.85 percent. The comparable Japanese bond yield was 0.24 percent. The spread was 0.61 percentage point, almost the widest since June. 

“Strong data today, and the market is expecting some strong data, will push dollar-yen even higher,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. U.S. two-year note “yields have been moving quite sharply higher, and that’s the reason why we’re seeing dollar- yen moving higher,” Stannard said. 

Australia’s dollar advanced 0.2 percent to 83.73 yen after earlier touching 83.90 yen, the strongest level since May 13. 

The Reserve Bank of Australia said in minutes of its Feb. 1 meeting that a “slightly restrictive” policy stance was appropriate as a resources boom boosts incomes. 

The pound strengthened against the dollar and euro for a second day and short-sterling futures fell after U.K. consumer prices rose to the highest since November 2008. 

The implied yield on the short-sterling futures contract expiring in December increased 0.04 percentage point to 1.75 percent as traders increased bets that the Bank of England will boost interest rates. 

Sterling appreciated 0.8 percent to $1.6161. Against the euro, the pound added 0.4 percent to 83.79 pence. 

Source: Bloomberg By Catarina Saraiva and Lucy Meakin 

Read More......

Retail Sales in U.S. Increased Less Than Forecast in January

Sales at U.S. retailers rose less than forecast in January, depressed by a drop in demand at building material stores and restaurants that may reflect the influence of harsh winter weather. 

Purchases increased 0.3 percent, the smallest gain since a drop in June and followed a 0.5 percent December gain that was less than previously estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 0.5 percent rise. 

Sales at retailers like Gap Inc., Limited Brands Inc. and Macy’s Inc. topped analysts’ estimates last month as merchants used promotions to lure post-holiday shoppers before storms blanketed much of the U.S. mid month. Federal Reserve policy makers are among those saying bigger gains in employment are needed to ensure American consumers sustain spending. 

“The weather kept people shoveling snow rather than heading to the mall,” said Russell Price, a senior economist at Ameriprise Financial in Detroit, who accurately forecast the gain in retail sales. “The consumer’s role in the recovery will take greater prominence in coming months. We definitely need to see further improvement in the labor market to have continued increases in spending.” 

Manufacturing in the New York region sped up in February, and the cost of imported goods climbed last month, other reports today showed.

New York Manufacturing

The Federal Reserve Bank of New York’s general economic index rose to 15.4, the strongest reading since June. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut. 

Import prices climbed 1.5 percent in January, Labor Department figures also showed today. Excluding food and fuel, costs rose 0.6 percent. 

Stock-index futures held earlier losses after the reports. The contract on the Standard & Poor’s 500 Index maturing in March fell 0.2 percent to 1,325.5 at 8:45 a.m. in New York. 

The projected gain in retail sales was based on the median forecast of 79 economists in the Bloomberg survey. Estimates ranged from a gain of 1.1 percent to a drop of 0.5 percent. The December increase in sales was previously estimated at 0.6 percent. 

Eight of 13 major categories showed an increase in demand last month, led by auto dealers, grocery stores and service stations.

Gasoline Prices

Filling station sales advanced 1.4 percent. The data, which aren’t adjusted for inflation, got a boost from rising gasoline prices. Regular fuel in January reached an average $3.10 a gallon, or 11 cents more than December, according to AAA, the nation’s biggest motoring organization. 

Sales climbed 0.5 percent at automobile dealers, consistent with industry figures that showed car purchases climbed last month to a 12.54 million unit annual pace that was the best since the government’s cash-for-clunkers program in August 2009. 

Purchases excluding autos increased 0.3 percent, today’s report showed. They were projected to rise 0.5 percent, the survey median showed. 

Demand dropped 2.9 percent at building-material stores, the most since May. 

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales increased 0.4 percent after a 0.1 percent decrease the prior month.

Restaurant Receipts

Restaurant receipts dropped 0.7 percent, the biggest decrease since March 2009. In contrast, the 1.3 percent gain at grocery stores was the biggest since August. 

Whole Foods Market Inc., the largest U.S. natural-goods grocer, last week raised its annual profit and revenue forecasts after the Austin, Texas-based company’s first-quarter earnings beat analysts’ estimates.

“Our results underscored signs that consumer confidence continues to improve,” Co-Chief Executive Officer Walter Robb said on a Feb. 9 conference call. 

Winter storms spread from the Midwest and the South to New England, covering 71 percent of the country with snow on Jan. 12, according to the National Climatic Data Center. 

Promotions and clearances lured customers after the holidays, helping retailers ring up sales early in the month before bad weather slowed shopping in the last two weeks, according to David Bassuk, head of the global retail practice at consultant AlixPartners in New York.

Chain-Store Sales

Sales at stores open at least a year at the more than 30 chains tracked by Retail Metrics climbed 4.4 percent in January for a 17th straight gain, surpassing its estimate of a 2.6 percent increase. 

Gap, a clothing retailer based in San Francisco, benefited from higher same-store sales at Banana Republic stores, while the Victoria’s Secret lingerie chain fueled results at Columbus, Ohio-based Limited. Department store Macy’s sales capped a year of “remarkable achievement in a period of economic uncertainty,” Chief Executive Officer Terry Lundgren said in a Feb. 3 statement. 

The recovery’s inability to create more jobs is one thing holding back consumers. While unemployment fell to 9 percent in January, from 9.4 percent in December, it has been 9 percent or higher since May 2009, the longest period of elevated joblessness since monthly records began in 1948. 

Fed Chairman Ben S. Bernanke and fellow policy makers are awaiting further proof of a durable pickup in the labor market that will lift growth. That’s one reason why they are pressing ahead with a second round of monetary stimulus worth $600 billion. 

Source: Bloomberg By Shobhana Chandra

Read More......

5 Major Currency Declined Caused by Big Indicator

This week, i am going to make an summary of 5 currency mover such as AUD,GBP,CHF,JPY, EUR toward USD currency. Moreover, if we look at AUD/USD currency for this week is slowly moving down. There have some fundamental factors which give a big influence for AUD currency mover like ANZ job advertisements m/m rise slightly from 1.2% (previous) to 2.4% (actual) and Retail sales m/m drop from 0.4% to 0.2%. Employment change has increase slightly from 1.8K to 24.0K but for Unemployment rate was still the same with previous result which was 5% only. In the short time, AUD/USD was going down from 7-12 february, you can see screenshoot below:

EUR/USD, on this currency mover for this week show fluctuate from 7-12 February, some influence factors that affect EUR such as German factory orders m/m dropped from 5.2% to -3.4%, France trade balance also dropped from -4.1B to -5.1B. In contrary, German trade balance can pump up from 11.8B to 14.0B as well as France industrial production show good sign to 0.3%. EUR/USD stand on 1.3538, the preview EUR currency mover shown below:

GBP/USD, this currency mover showed down, some factors influence are like RICS house price balance rise slightly from -39% to -31%, Trade balance dropped from -8.5B to -9.2B, manufacturing production m/m dropped from 0.6% to -0.1% and for others impact like Asset purchase facility and Official Bank Rate were the same result from previous. On 11 February, PPI input and output m/m show good result from 3.9% to 1.7% so that increase a little bit.

USD/CHF, this currency mover weekly declined, it was caused by some important factors for USD were having a good sign such as Consumer Credit, Unemployment Claim, Prelium UoM Consumer Sentiment. Even thought, USD Trade Balance was down slightly. 

 

USD/JPY, for this currency mover showed that there have no big indicator influence on this weeks, the cause of going up is because of USD good sign.

 

In conclusion, 5 major currency declined toward USD in this week. But, the screenshoot above was just in the short term means that if we look for the long term condition, 5 major currency show a good sign step by step so that trader must to consider both technical and fundamental analysis in order to take a right decision in the market place. 

Source: ForexFactory

Read More......

Dollar Strengthens as Egypt's Turmoil Boosts Haven Appeal of U.S. Assets

The dollar rose against most of its major counterparts amid speculation turmoil in Egypt will worsen, boosting demand for the safety of U.S. assets. 

The greenback headed for a third weekly gain versus the euro after Egyptian President Hosni Mubarak defied calls for his immediate resignation, agreeing only to delegate powers until a September election. Australia’s currency slid below parity with the dollar after Reserve Bank Governor Glenn Stevens said policy makers judged it “sensible” to keep interest rates on hold. U.S. consumer confidence rose this month, data showed. “Everyone is more fixated on Egypt, and it’s hurting sentiment,” said Win Thin, global head of emerging market strategy at Brown Brothers Harriman & Co. in New York. “When this risk pressure pops up, that’s when the dollar gets a bit more in favor.” 

The dollar appreciated 0.4 percent to $1.3555 per euro at 10:53 a.m. in New York, from $1.3603 yesterday, when it rallied 1 percent. The greenback has gained 0.2 percent this week against the common currency. The dollar advanced 0.1 percent to 83.35 yen. The euro declined 0.2 percent to 112.94 yen. 

The euro remained lower versus most counterparts as the German government said Bundesbank President Axel Weber will resign from his post on April 30. The decision takes him out of the race to succeed Jean-Claude Trichet as European Central Bank chief when Trichet’s term expires on Oct. 31. 

U.S. Yields Fall 

The yen pared its loss against the dollar as yields on U.S. Treasuries extended declines, damping the appeal of dollar- denominated debt. The yield on the benchmark 10-year note fell eight basis points, or 0.08 percentage point, to 3.61 percent. 

Canada’s dollar rose against all of its 16 most-traded peers as the nation unexpectedly posted its first trade surplus in 10 months and the U.S. trade deficit widened 5.9 percent to $40.6 billion, in line with forecasts. The Canadian currency gained 0.9 percent to C$1.3412 per euro. 

Sweden’s krona slid against the dollar as equities declined, with the OMX Stockholm 30 Index touching to its lowest level since Dec. 1. 

The krona depreciated as much as 1.3 percent to 6.5423 per dollar, its weakest level since Jan. 31, and headed for a weekly drop of 0.3 percent. 

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, climbed as much as 0.6 percent to 78.697, the highest level since Jan. 21. The gauge has risen 0.5 percent this week in what would be its first five-day rally since Jan. 7.

Resort Town

Mubarak and his family left Cairo and arrived at the resort town of Sharm El-Sheikh, Al Arabiya television and the Associated Press reported without citing sources. Mubarak said yesterday he intended to stay on as president until the elections, while handing day-to-day powers to Vice President Omar Suleiman. 

Protests in Egypt, inspired by the revolt that ousted Tunisian President Zine El Abidine Ben Ali on Jan. 14, sparked concern that tension would spread in a region that holds more than 50 percent of the world’s known oil reserves. 

“The surprising events in Egypt caused a little bit of a roil in the market,” said Steve Butler, director of foreign- exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “We’ve seen the market looking for a little bit of protection and with that, flocking to the U.S. dollar.” 

Stocks were little changed after the MSCI World Index fell earlier as much as 0.5 percent and the Standard & Poor’s 500 Index dropped as much as 0.4 percent. 

The dollar was poised for a 1.4 percent weekly gain versus the yen, its biggest since Jan. 7. 

U.S. Confidence Rises 

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 75.1, the highest level since June, from 74.2 in January, in line with the median forecast of economists in a Bloomberg News survey. 

Australia’s dollar moved below parity with its U.S. counterpart for the first time in almost two weeks, weakening for a third day, as Stevens said in parliamentary committee testimony that there was no urgency to boost borrowing costs in the first half of the year. That led traders to cut bets on the amount rates would be increased over the next 12 months. 

“Stevens is leaning toward the dovish side, and that saw the Aussie drop, with his comments taking a rate hike out of the immediate picture,” said Tim Waterer, a foreign-exchange dealer at CMC Markets in Sydney. 

Traders lowered their prediction for the amount of interest-rate increases by the Reserve Bank over the next 12 months to 35 basis points from 41 basis points yesterday, according to a Credit Suisse Group AG index based on swaps.

South Korean Won 

Australia’s currency fell 0.4 percent to $1.0008, from $1.0044. It dropped as much as 0.8 percent to 99.61 U.S. cents, the lowest level since Jan. 31. 

South Korea’s won decreased for a third day after the central bank kept its benchmark rate at 2.75 percent, a result predicted by only 3 of 12 economists in a Bloomberg News survey. The others forecast an increase. The currency depreciated 1.1 percent to 1,128.47 per dollar, after sliding to 1,128.70, the weakest since Jan. 11. 

Source: Bloomberg By Catarina Saraiva and Lucy Meakin 

Read More......

Gold Rises to Three-Week High Amid Escalating Tensions in Egypt

Gold rose to a three-week high as mounting tensions in Egypt spurred demand for the precious metal as an investment haven. 

Egyptian President Hosni Mubarak defied calls for his immediate resignation as thousands of protesters demanded an end to his 30-year rule. Gold headed for the third straight weekly gain after slumping 6.1 percent in January. In 2010, the price jumped 30 percent, the 10th straight annual gain. 

“All eyes are on Egypt,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “The crisis turned the gold market, so gold hasn’t technically had a correction. If it becomes a bloody revolution, gold will be seen as a haven.” 

Gold futures for April delivery rose $4.30, or 0.3 percent, to $1,366.80 an ounce at 10:50 a.m. on the Comex. Earlier, the price reached $1,369.70, the highest for a most-active contract since Jan. 20. 

Silver futures for March delivery climbed 6.6 cents, or 0.2 percent, to $30.16 an ounce. 

Palladium futures for March delivery fell $1.60, or 0.2 percent, to $819.30 an ounce on the New York Mercantile Exchange. 

Platinum futures for April delivery dropped $2.20, or 0.1 percent, to $1,828.60 an ounce. 

Source: Bloomberg By Pham-Duy Nguyen 

Read More......

Bernanke says job growth, inflation still too low

(Reuters) - U.S. unemployment remains too high despite increasing signs of economic strength, Federal Reserve Chairman Ben Bernanke told Congress on Wednesday, suggesting the central bank would push on with its $600 billion stimulus program.

In testimony to the U.S. House of Representatives' Budget Committee that largely echoed a speech he delivered last week, Bernanke also warned about the dangers of unsustainable budget deficits.

He acknowledged fresh data showing a drop in the jobless rate to 9 percent in January from 9.8 percent in November, the biggest two-month drop since 1958, calling it "grounds for optimism."

However, Bernanke reiterated concern about the anemic pace of hiring.
"The job market has improved only slowly," he said, noting the economy had only made up just over 1 million of the more than 8 million jobs lost during the deepest recession in generations.

"This gain was barely sufficient to accommodate the inflow of recent graduates and other new entrants into the labor force and, therefore, not enough to significantly erode the wide margin of slack that remains in our labor market."

In November, the Fed launched a plan to buy $600 billion in government debt to keep a lid on long-term borrowing costs.

That program drew ire from many policy-makers in emerging markets, who accused the United States of unfairly driving down the value of the U.S. dollar to boost exports. At home, many Republican lawmakers in Congress attacked the program as potentially sowing the seeds of inflation.

Bernanke said inflation remains quite low in the United States, a tough message to deliver amid headlines of rising food and commodity costs across the globe.

He also said expectations of future inflation had remained "stable," suggesting little worry an inflationary psychology was building despite rising gasoline costs.

"Inflation is expected to persist below the levels that Federal Reserve policymakers have judged to be consistent" with their mandate, Bernanke repeated.

The chairman of the committee, Republican Rep. Paul Ryan of Wisconsin, took issue with that view. In his opening comments, he criticized the Fed's policies as providing the fuel for future bubbles and inflation, suggesting the Fed's bond purchases were eroding the U.S. dollar's value.

"There is nothing more insidious that a country can do to its citizens than debase its currency," Ryan said.
Bernanke was sure to be peppered with questions on both Fed policy and the budget by a Republican-led Congress that has become increasingly impatient with the Fed.

Preemptively, the Fed chairman had much the same message that he has offered repeatedly: either legislators bring the budget under control or the markets will force them into it.

"Creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit," he said. If unheeded, the adjustment could "come as a rapid and painful response to a looming or actual fiscal crisis."

Source: Reuters By Pedro da Costa and Mark Felsenthal 

Read More......