Euro Rallies on Strong Data and Hawkish Comments (page 2 of 2)

At that time, the market did not think about what the rate cut meant, but instead about whether it would be the one and only rate cut from the BoE this cycle. This suspicion was first raised by the statement released by the central bank, which was not entirely dovish. Today, that suspicion was confirmed by producer prices, which grew by the fastest pace since 1991. Food and energy prices have been on the rise and we are finally seeing that upside pressure being passed on to consumers. This pace of producer price growth will make it difficult for the Bank of England to cut interest rates again when they meet in January, unless the UK economy slows materially. Tomorrow we are expecting the UK trade balance. Firm industrial production should help reduce the trade deficit.

Australia, New Zealand Dollars Recover, But Caddy Remains Steady

The Australian and New Zealand dollars are stronger today thanks to a $13 rise in gold prices and a rebound in carry trades. There was no major data released from either country and aside from the NAB's measure of business conditions in Australia, no major economic data is expected tonight either. Instead, the next move in these currencies will be largely contingent upon the market's reaction to the Federal Reserve's interest rate decision. Should the Dow rally on the rate announcement, we could a similar move in the high yielders. The Canadian dollar on the other hand has barely budged. Housing starts were stronger expected but that seemed to be offset by a drop in oil prices. This is a quiet week for the Canadian dollar and we expect more consolidation or profit taking around current levels.

Carry Trades Break Higher As Dow Climbs 100 Points

On Friday, the Dow stalled, leading many people to wonder whether we have seen a top in US equities. Although we could be nearing one as resistance looms at 13,800, today's 100 point rally in the Dow has helped to take the Japanese Yen crosses higher. Despite stronger than expected money supply and machine orders, the economy continues to be held back by weak sentiment. Last night, the Eco Watchers survey for the month of November dropped from 41.5 to 38.8, a four year low. Unless the government finds a way to revive consumer spending and boost consumer sentiment, they will have a tough time supporting an interest rate hike. Since there is no overnight solution, expect the Yen crosses to continue to dance to the tune of the Dow in the interim.