[B]Talking Points
• Japanese Yen: Finds Resistance Near 110, Consolidates at 109.50
• Euro: ECB Decision Ahead
• British Pound: BoE Leaves Rates Unchanged At 5.00%
• US Dollar: MBA Applications on tap
[/B]
[B]Talking Points
• Japanese Yen: Finds Resistance Near 110, Consolidates at 109.50
• Euro: ECB Decision Ahead
• British Pound: BoE Leaves Rates Unchanged At 5.00%
• US Dollar: MBA Applications on tap
[/B]
Pound Unchanged As BoE Leaves Rate Unchanged Will Trichet Follow Suit?
The Pound was virtually unchanged following the announcement that the BoE left their benchmark unchanged at 5.00% as they continue to weigh the downside risks to the economy against inflation rising to 3.8%. A housing slump that is approaching the worst levels in a quarter century has brought the British economy to the doorstep of a recession. The manufacturing and service industries shrunk in July and consumer consumption fell 3.9% in June.
After falling as low as 104 during trading yesterday, the Euro found a bid tone ahead of the ECB rate announcement, but failing to climb back above 1.500. The markets will be listening attentively to President Trichet’s post announcement press conference today for any indication on the ECB’s future bias. The central bank leader stated following last month’s 25 bps rate hike, that interest rates at a seven year high of 4.25% “will contribute to achieving our objective of price stability. I have no bias”. Those comments and subsequent one from other members have diffused earlier estimates that further tightening was forthcoming. The increase in credit costs has accelerated the decline in growth in the region, which lead to a dovish Trichet. However, Lufthansa’s pilot’s union earning a wage increase will amplify the MPC’s concerns over secondary effects of inflation, and continue the ECB’s staunch hawkish bias.
The USDJPY ran out of steam before hitting significant resistance at 110, and has consolidates at the 109.50 price level. The pair rose over a 100 points after the Japanese government acknowledged that e country was heading into a recession. Today’s 9.9% decline in Machine orders underlined those statements, as declining demand from emerging markets and the headwinds from the U.S> continue to take its toll on the Island country’s economy.
Initial jobless claims and pending home sales will provide a significant amount of event risk in their own right. A third straight week above 400,000 new unemployment applicants will highlight the weakening labor market. Additionally, another decline is pending home sales following May’s 4.9% decline, which was the biggest since August 2007, will confirm that the housing market is yet to reach a bottom. The weak fundamental data could lead to the dollar erasing the past week’s gains if a hawkish ECB sparks bearish sentiment.
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