A very quiet overnight session in the currency market tonight as traders awaited interest rate decisions from both the Bank of England and the European Central Bank.
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[B][U]Talking Points[/U][/B]
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[B]Japan[/B][B]ese Yen: pivots around 116,50 in quite trade [/B] -
[B]Euro: bounces off 1.4100 on rumored East European interest[/B] -
[B]Pound: Continues to hover around 2.0300HBOS survey soft [/B] -
[B]USD: Factory Orders on tap[/B]
A very quiet overnight session in the currency market tonight as traders awaited interest rate decisions from both the Bank of England and the European Central Bank. Neither one of the monetary authorities is expected to take action, although if there were to be any surprises it would come in the form of a rate cut from the BoE, as credit conditions in UK remain tight, while pricing pressures and economic activity appear to be slowing.
At 5.75% the pound sports the highest rate amongst the majors and many analysts feel that BoE can afford to lower rates 25bp in order to ease the monetary conditions in the UK banking sector. However, the majority of market participants expect the BoE to remain pat for the time being reserving the right to lower rates for November, should UK economic conditions deteriorate further.
In the only piece of UK economic news to be released today, the HBOS housing survey printed at -0.6% versus 0.4% expected suggesting that the financial market turbulence of the past several months is having a discernable impact on housing demand. Although house prices continue to increase at double digit rates on a year over year basis, the pace of apperception has slowed markedly, allowing the BoE some room to lower rates. Nevertheless, it appears as though UK monetary officials do not consider the present economic situation to be grave enough to warrant a rate cut and after some initial weakness at the London open, traders rallied GBPUSD into the BoE decision anticipating a no change verdict.
No change is forecast from the EZ as well, where only a few moths ago, most analysts had expected the ECB to have raised rates to 4.25% by now. However, the credit market turmoil in August along with record setting rise in the EURUSD have tempered ECB?s inclination to raise rates for the time being. As we have noted all week, EZ economic data has been relatively weak, while pricing pressures appear non-existent providing Mr. Trichet and company with little reason to be hawkish. Today?s commentary from German economic minister Glos which echoed prior concerns from Italian and French officials over an unchecked rise in the EURUSD, only adds to the pressure for ECB to remain stationary for the rest of the year. However, Mr. Trichet takes ECB?s independence quite seriously and should his comments suggest a possible rate hike before the year end, the EURUSD would likey rally in the aftermath of the press conference.
