President Trichet speaking to the European Parliament stated that the current interest rate policy would help achieve the goal of price stability but that price pressures will remain over the medium term and the ECB was focused on preventing second round effects of inflation.
[B]Talking Points
• Japanese Yen: Choppy Trading As Lehman Troubles Plaque Risk Appetite
• Pound: Trade Data Kills Pound Rally
• Euro: Reverses Gains On Trichet Reaffirms Price Stability Focus
• US Dollar: Lehman Troubles Loom
Euro Gives Back Gains From Trichet’s Reaffirmation of Price Stability Focus; Lehman Statement May Impact Dollar. [/B]
President Trichet speaking to the European Parliament stated that the current interest rate policy would help achieve the goal of price stability but that price pressures will remain over the medium term and the ECB was focused on preventing second round effects of inflation. The central bank leader also stated that growth in the region would rebound after a dip in growth during the second and third quarters. A rebound in French industrial production of 1.5% in July from –0.6% the month prior supports those statements. The Euro would reach as high as 1.4177 but the typical statements failed to generate any significant euro bullish momentum, which would see the EURUSD fall back below 1.4120.
As long as the ECB maintains its price stability focus and contention that growth will rebound, the interest rate outlook will remain firm. However, the failure to break back above 1.4200 demonstrates the clear shift in trader’s sentiment toward the U.S. As the financial picture continues to clear and the European economies weaken further, investors are increasing their bets in the American economy. As the outlook for Asian, Europe and emerging markets decline U.S. investors are beginning to change their focus back toward domestic opportunities. As the trend continues the repatriation of dollars will continue to lend support to the greenback.
The Pound was finding support throughout the overnight session until its trade report showed the deficit widening to 7.667 billion from 7.500 on falling imports. The U.K. consumer has been battered by high inflation and a declining housing market which has led to speculation that the BoE will need to lower interest rates in the near term to soften the economy’s landing which continues to weigh on the pound.
The troubles of Lehman Brothers may dictate the sentiment towards the dollar today, as the beleaguered bank will report its third quarter results and future initiates today at 7:30 EST. The statement will come a week ahead of schedule as rumur have swirled regarding a potential takeover after interest from the Korean Development Bank has ended. Despite the dollar weakening on the re-emergence of financial sector concerns, it has held on to the majority of its recent gains. If Lehman’s statements today can restore confidence that the investment bank will soon find solid footing then the dollar could look to regain its momentum as the subprime fall out appears to be coming to a close. Oil firming on the back of OPEC President Chakib Khelil calling for members to reduce production and adhere to established quotas. It is clear that the oil-producing cartel is ready to defend $100 per barrel , which could weigh on the dollar if crude prices continue to appreciate.
[B] Will The EUR/USD Break 1.4000? Join us in EURUSD Forum[/B]
[B] For More Fundamental Analysis, Check Out Our Other Daily Reports.[/B]
Related Articles: US Dollar Still Strong on Expectations the Fed Will Raise Rates, ECB Will Cut - But When?
