EU session review: Yen weakens as global recovery signs reduce demand for safer assets

Data released
09:30     UK     Claimant count (January)    2400    -2000    -3400 (-4100)
09:30     UK     Claimant count rate (January)    4.5%    4.5%    4.5%
09:30     UK     Average earnings (3 months to December) Y/Y    1.8%    2.0%    2.1%
09:30     UK     Average earnings ex bonuses (3 months to December) Y/Y    2.3%    -    2.3%
09:30     UK     ILO Jobless rate (December)    7.9%    7.9%    7.9%
10:30     UK     BoE quarterly inflation report             

The yen reached a two-week low versus the euro as stocks rose on optimism that the global recovery is gaining momentum.
“Confidence in the global economy is certainly improving, and that’s resulting in safe-haven currencies such as the yen and dollar weakening,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd.
The pound slid after Bank of England Governor Mervyn King said inflation will peak this year and ease in 2012.
The Bank of England today said its central forecast is for inflation to peak at about 4.4% this year before easing to the 2% goal by the middle of 2012, and undershoot the target within two years.
“The best collective judgment of the committee is that the chances of inflation being above or below the target are broadly equal,” King told reporters today. “The recovery is unlikely to be smooth.”
Sterling is still up 2.8% against the dollar this year as accelerating inflation has spurred speculation policy makers will be forced to raise borrowing costs.
A U.K. report yesterday showed consumer prices rose an annual 4% last month, the fastest since November 2008 and twice the central bank’s 2% target. Data today showed British unemployment claims unexpectedly rose in January.
Australia’s dollar pared its gains after Moody’s Investors Service said it may cut credit ratings on the nation’s biggest banks, including Westpac Banking Corp. and National Australia Bank Ltd.
An Australian index of leading indicators increased in December as the economy expanded before flooding struck the nation’s northeast. The index rose 0.8% from a month earlier. The index grew at an annual rate of 4.2% in December, accelerating from 3.6% in November.

EUR/USD printed session lows on $1.3570, but it failed to hold higher. As a result rate fell to support at $1.3500.

GBP/USD sharply fell down from $1.6186 to the lows around $1.6146 after BoE inflation report. Later rate recovered to $1.6176, but sales dragged the pound down to earlier lows.

USD/JPY holds within the narrow range, limited by Y83.60/83.

The main US releases are at 1330GMT, with the Producer price data and housing start numbers.
Producer prices are expected to jump 0.8% in January. The core PPI is expected to rise 0.2%.