ECB Trichet Non Committal About September Rate Hike (page 2 of 2)

He added that the ECB never pre-commits on interest rates which clearly indicates that they haven't decided what they will be doing either. Given the recent market turmoil, we think that all central banks with a hawkish bias will err on the side of caution and opt to forgo a rate hike for the time being.

German and French banks have also fallen victim to the US subprime and credit crisis. To press forward with a rate hike may be too much for the European corporations to handle. The German IFO report is due for release tomorrow; business sentiment is expected to deteriorate.

Japanese cabinet shakeup fails to hurt the Japanese yen

The Japanese Yen has strengthened across the board today on the back of US equity market weakness. Carry trades rebounded throughout last week and have now hit their exhaustion points. Many of the pairs hit technical resistance which has led to profit taking near current levels.

News that Japan's Prime Minister will be completely reshuffling his Cabinet amidst his low approval ratings has had a nominal impact on the Japanese Yen. Usually political uncertainty is not good for a country's currency, but in the case of Abe, any change may be for the better. Twelve new appointments are expected to be made and only five ministers will retain their posts.

Finance Minister Omi has been one of the Cabinet members to lose his job. Abe is expected to replace the Cabinet with veterans who have served under Koizumi, Abe's predecessor. For the time being, the market's risk appetite should continue to drive the movements of the Japanese Yen.

British pound pulls back in quiet trading

The British pound pulled back against the US dollar and Japanese Yen but strengthened against the Euro in quiet trading. There was no data released given that UK markets were closed for holiday.

Former Bank of England member Nickell, who is a dove suggested that the Bank of England could still raise interest rates this year. Although UK economic data has been steady, his comments hold little weight since the central bankers around the world have yet to decide themselves what to do with interest rates.

Australian dollar holds steady while New Zealand and Canadian dollars underperform

It has been a while since we have seen a divergence in the performance of the commodity currencies. The Australian dollar strengthened today against the greenback while the New Zealand and Canadian dollars weakened.

The latter's performance is understandable since high yielding currencies all pulled back in lockstep with the Dow. There is little information on why the Australian dollar has rallied however.

There will be a lot of Australian data due out later this week and perhaps some traders are expecting firmer numbers. Average hourly earnings are expected out of Canada tomorrow, but that figure is not typically a market mover.