Archived IMT (2011.01.31)

CONTRASTING INFLATION RATES: Questions over the credibility of US inflation data should grow increasingly vocal. Just a few hours after the Eurozone released its estimate of Jan CPI at 2.4% (highest since Oct 2008), the US Commerce Department releases its December figures for core personal consumption expenditure index (Feds preferred inflation measure) at 0.7% y/y, the lowest on record. The headline PCE edged up to 1.2% from 1.1% despite double digit growth in each component of the CRB index. By these standards, the FOMC can afford to continue deeming disinflation as the greater risk, justifying QE2 until June. Such contrasting inflation figures (relative to growing inflation in UK and Eurozone) are likely to weigh on the USD from a yield differential stance point. Today, the US-GE 10-year spread drifts to 0.19%, the lowest since December 7th. EURUSD HAS YET to breach over the $1.3750s, highlighted by the 61.8% retracement and the WEEKLY DOJI. AUDUSD remains confined between 0.9970 trendline resistance and 0.9984 high.GBPUSD soars +150 pips with the help of Martin Weale's hawkish comments but seen capped at $1.6060s.