Euro Makes New Record High Despite Sharp Drop in Business Confidence (page 2 of 2)

There is not much on the Eurozone calendar tomorrow, but Switzerland has leading indicators due for release, which is expected to be weaker.

Bank of Canada Dodge Only Mildly Concerned about CAD Strength

Although no Canadian economic data was released today, the markets were eagerly awaiting the comments from Bank of Canada Governor David Dodge. With the CAD at parity with the US dollar, any changes to the central bank's monetary policy stance could either trigger a sharp recovery in the loonie or further gains.

However instead, Dodge walked a very fine line by saying that interest rates were appropriate but the loonie had strengthened above their assumed trading range and because of that, they need to evaluate its cause.

Meanwhile the Australian dollar continued to rally on the back of higher gold prices and optimistic comments from Reserve Bank of Australia (RBA) Governor Rick Battelino. The New Zealand dollar did not fare as well ahead of its August trade balance numbers unfortunately. Its five day rally ended today.

British Pound Hit by News that UK has only £4.4bn to Cover Bank Deposits

With no major economic data released this morning, the British pound came under pressure after the UK Telegraph reported that the Bank of England only has £4.4m to cover UK bank deposits in the case of a failure.

The paper compares this amount to the $49bn held by the Federal Deposit Insurance Corporation (FDIC) in the US. Although these numbers are true, the information is a bit distorting. The policies in the UK and the US are very different.

The Financial Services Compensation Scheme (FSCS), which is the UK version of the FDIC, holds no funds and only raises those funds in the event of a bank failure. The US on the other hand does have that money readily available in case of a collapse.

The amount held by the FDIC is still small; it represents only 1.5 per cent of total US deposits. The UK does guarantee less deposit than the US (£70,000 in UK and $100,000 in the US) and depositors need to wait, which is a problem, but things in the UK are not as bad as the article suggests.

Tepid Rally in US Stocks Leads to Mixed Performance in Japanese Yen Crosses

The Dow rallied by a lackluster 19 points which explains why the Japanese yen crosses are mixed on the day. The corporate service price index rose less than expected in August indicating that inflation is not really a problem.

This reinforces the market's belief that interest rates in Japan will not be increased anytime soon. The trade balance is due for release tonight, but we do not expect that to be particularly market moving either.

Instead, the yen crosses will continue to move in lockstep with the Dow.