Carry Trades Rebound as Dow Sees Biggest Percentage Rise in Four Years (page 2 of 2)

The last time this epidemic hit the country was back in 2001 when the economic impact was close to GBP10bn. At that time, not only was the British meat shut out of the international markets, but tourism was also seriously affected. Between the spring and summer of 2001, the British pound fell from 1.4750 to 1.3680, which is over 1,000 pips.

Although the UK government is doing all that they can to contain the outbreak, the US, Japan and EU have already banned imports of live animals, fresh meat and milk from the UK. To some degree, this must have a negative impact on the UK economy and that inevitability is being reflected in the British pound today.

Even though the Bank of England will be delivering their Quarterly Inflation report on Wednesday, the FMD breakout could curtail any further pound strength.

Euro falls short of hitting its record high

The euro came within a hair shy of hitting its all time high of 1.3852. Much stronger than expected German factory orders and demand for EUR/JPY has helped the EUR/USD hold steady despite a strong rally in US stocks and US bond yields.

The market was looking for factory orders to retrace after rising strongly in May. However the strong euro seems to have only a limited impact on demand since orders increased 4.6 per cent which compares to the market's -0.6 per cent forecast.

This suggests that Tuesday's industrial production numbers could also be firm. European Central Bank (ECB) President Jean-Claude Trichet installed a strong bid tone in the currency last week when he held a surprise press conference to announce to that they essentially plan on raising rates next month.

In an environment where the US is on the verge of lowering rates, this has become very bullish for the euro at the expense of the US dollar.

Australian, Canadian and New Zealand dollars all up strongly

The Australian, New Zealand and Canadian dollars are all up strongly today despite the drop in both oil and gold prices.

New Zealand labour costs increased more than expected in the second quarter, which suggests that the labour market remains tight. Actual employment data will be released later this week.

Australian ANZ job advertisements fell by 0.5 per cent, but the market is still looking for a nice rebound in jobs last month. Before we get that data however, we have the Reserve Bank of Australia interest rate decision. The market is pricing in a quarter point rate hike tomorrow night.

When the central bank raises rates, they also release a statement. The high level of inflation suggests that the RBA could still raise rates again this year, but they will probably pause given global economic conditions.