• Producer Prices Leads Speculation Of Higher Rates
• British Pound Still Reeling From Dour Retail Sales
• Growth Soars Above Previous Mark For Japan

US Dollar
Conflicting dollar based data kept the markets quiet following a week in anticipation of Bernankeâ�,��"�s first words.  As a result, traders mostly remained on the sidelines as reports were mixed in the worldâ�,��"�s largest economy.  According to the Labor Department, producer prices climbed 0.3 percent on the year while the core figure jumped for the biggest gain in a year.  Excluding the volatile food and energy components, the â�,��"coreâ�,� gauge increased 0.4 percent, double the consensus expectations.  Fueled mostly by higher precious metal prices on increases in jewelry demand, the figure reflected an offset of higher electric prices to consumers with a drop in gasoline prices.  Nonetheless, the rise should bolster some speculation heading into next week as the interest rate theme remains intact.  Additionally, consumer confidence remained healthy, but slightly to the downside in the month of February, according to the University of Michigan survey.  Printing a reading of 91.2 in January, the survey dipped to 87.4 as higher energy prices in the beginning of the month kept consumers hesitant.  As a result, the future second assessment may be revised above current readings as prices have retraced back slightly.

Euro
Aside from a handful of minor reports including French wage and employment data, Euro traders garnered strength on the day as a result of slightly higher production figures.  Industrial production rose for the second consecutive month in December, climbing just above the zero percent estimated, jumping by 0.1 percent.  With output in the month rising 2.5 percent higher on the annualized comparison, confidence still remains shaky as the region continues to battle consumer hesitance as a result of record unemployment levels and lofty energy prices.  Euro bulls are still reeling from disappointing data in Germany and France as growth was less than expected and exports visibly weak.  Nonetheless, the European Central Bank looks to continue their preemptive plan to curb inflationary pressure in the member states by raising the benchmark short term interest rate another 25 basis points in two weeks time.  According to President Jean Claude Trichet, inflationary pressures continue to loom as energy prices climb and a credit problem begins to form.  However, with growth already tepid and energy prices seemingly a shock to the overall economy, the rise in rates may be preemptively choking off future expansion. 

British Pound
Thin action was seen in the pound sterling for the session with more indecision looming over price action just before the weekend.  Opening the session at 1.7394, the range has been capped at about a 10 pip range with the close looking closer to 1.7406, towards the smaller end of what we have seen in the past week.  However, next weekâ�,��"�s schedule should provide some better action as market participants will look to relate sentiment of this weekâ�,��"�s conflicting reports from the Bank of Englandâ�,��"�s quarterly inflation report and the most recent survey on retail sales.  To this end, market participants will be scrutinizing the Bank of England minutes for statements underpinning views in the quarterly that saw economic growth still on the rise, albeit considerably slower than previously expected.  This will coincide with the release of the quarterly gross domestic product figure which is expected to climb above previous readings and an anticipated CBI industrial trends survey.  No expectations surround the survey, however, market participants will certainly be focusing on the report to see any correlated upticks in manufacturing and industrial output activity.  Should the survey show increases, the results may be enough to offset retail sales losses.  

Japanese Yen
Shattering the consensus figure, Japanese fourth quarter growth vaulted past expectations even soaring above expansion seen in the quarter on an annualized comparison for both the United States and the Euro zone.  Climbing past the 1.2 percent expected, gross domestic productivity in the worldâ�,��"�s second largest economy rose 1.4 percent in the final quarter.  The final figure confirms suggestions throughout last year that the beaten down economy may finally be turning the corner as consumer spending picks up and capital investment begins to ramp up.  However, deflationary pressures continue to hamper higher interest rate implementation and potential domestic currency appreciation in the near term.  For the record, the GDP deflator softened from a decline of 1.3 percent to 1.6 percent in the quarter.  Referred to as an inflationary suggestion, the deflator contradicts earlier consumer price reports that reflected a slight up tick in prices.  This will more than likely be used by policy makers in keeping the currently loose monetary policy in place until cemented signs of inflation can be obtained in the near term.  Looking forward, next week holds a basket of indicators that look to lend to near term Japanese yen strength.  Included in the schedule will be industrial production, retail trade and trade balance.

Kathy Lien is the Chief Currency Strategist at FXCM.