Record Low European Producer Prices Allows ECB to Remain On Hold

[B]Fundamental Headlines[/B]

[I]• Global Economy Gains Steam– Wall Street Journal
• M&A Revival Seen in Three Deals – Wall Street Journal
• EU wary on withdrawing fiscal stimuli – Financial Times
• Wells Fargo Will Repay TARP `Shortly’ Without Raising Equity, Stumpf Says – Bloomberg
• Stocks Fall for Third Day, Industrial Metals Drop; Australian Dollar Gains -Bloomberg[/I]

[B]EURUSD [/B]– The second reading of Euro-Zone GDP was unchanged at -0.1% despite an upward revision to household consumption to 0.2% from 0.0%. Indeed, consumer consumption rose from -0.5% the quarter prior which will ease concerns that the consumer will be hard pressed to return to pre-crisis spending habits. Meanwhile, producer prices declined by 8.5%, which was the most on record led by a 20.2% drop in energy costs from a year ago. Depressed prices will allow the ECB to maintain interest rates at their record low of 1.00% at tomorrow’s rate decision. However, the improvement in the economy could lead to increased interest rate expectations. Discuss the topic and your trade ideas in the EUR/USD Forum.

GBPUSD[/B] – The Purchasers Manager’s Index (PMI) for the U.K. construction industry rose to an 18-month high of 47.7 in August. However, it as only a mild improvement from July’s reading of 47.0 and remained below the boom/bust level of 50 signaling contraction. The U.K. economy has continued to show signs if improvement and that a recovery is beginning but policy officials remain cautious as another shock to the system could have detrimental results. Therefore, we expect that the BoE will continue to keep rates at their record low 0.50% and leave open the door for additional quantitative easing which could be a weighing factor in the sterling. Discuss the topic and your trade ideas in the GBP/USD Forum