Don't Bet Against the ECB (page 2 of 2)

According to the central bank head, "Even though inflation is close to the target and pay pressures are muted, we will continue to look ahead and monitor the risks to inflation that we identified in August." More specifically, King said that business and financial surveys indicate expectations for increased inflationary pressures in the months to come, suggesting that hikes in price could be passed onto consumers. For British pound traders, the chance of a rate cut from the Bank of England has fallen on the back of the central bank's comments. There will be no more data to clarify the interest rate outlook for the remainder of the week which leaves the GBP/USD's movements vulnerable to US data.

Japanese Yen weakens Ahead of Bank of Japan Rate Decision

Japanese Yen crosses are rallying ahead of this evening's Bank of Japan interest rate decision. The central bank is widely expected to leave interest rates unchanged because deflation remains a constant battle. Earlier this week we had talked about how the cell phone price war in Japan is driving prices lower. Today, convenience stores were split on whether to raise food prices on some products despite an increase in their own costs. Although the problems in the credit markets have subsided, the fact that the Federal Reserve has initiated the trend of lowering interest rates makes a rate hike by the Bank of Japan stick out like a sore thumb and Japanese growth has not been stellar enough to warrant a rate hike. Even though the Dow is weaker today, the Yen still sold off against every major currency pair with exception of the Australian, New Zealand and Canadian Dollars.

Australian, New Zealand and Canadian Dollars: Weaker Across the Board

The Australian, New Zealand and Canadian dollars are weaker across the board despite slightly higher gold prices. The recent rallies in commodity currencies have become very overextended which makes today's correction hardly a surprise. There was no economic data released from Canada, but Australia reported a drop in consumer confidence for the month of October, improvement in investment lending and home loans in the month of August. The housing market in New Zealand on the other hand is not faring as well with sales of houses in New Zealand falling by the most in more than 9 years. New Zealand business PMI is due for release tonight along with Canadian international merchandise trade balance and new house prices tomorrow. For the time being, the uptrend in all three pairs is intact.