Although the Euro weakened slightly against the US dollar today, we expect the currency pair to remain mostly range bound ahead of the ECB interest rate decision. Producer prices were slightly stronger than expected in the month of July, but since the annualized pace of growth is still below 2 percent, it should not cause that much concern for the ECB.
Instead, Trichet and company will have to consider how widespread the problems in the financial sector are at the moment. There is talk that more German banks will report large subprime related losses. Meanwhile second quarter Swiss GDP growth was stronger than expected. This is the first time in a while that we have seen firmer Swiss reports. We expect the central bank to follow in the footsteps of the ECB, meaning that if the ECB stays on rates, the SNB will too.
Written by Kath Lien, Chief Currency Strategist of DailyFX.com