ECB Expected to Leave Interest Rates Unchanged (page 2 of 2)

This would be the second rate cut for the central bank since they began lowering interest rates in December. Getting the BoE to cut rates has been like pulling teeth. Each rate cut that they have doled out has been a reluctant one. Tomorrow will be no different because the UK has to balance slowing growth with rising inflation. According to the shadow committee that tries to vote like the BoE would, only 5 of the 9 members will favor a rate cut. This means that the statement may not be as dovish as everyone expects and if that is the case, the British pound may actually rally. UK economic data has also been mixed with a drop shop prices and a decline in consumer confidence offset by yesterday's rise in service sector PMI. Before the BoE rate decision, we do have UK industrial production, which is suppose to be weak following the drop in manufacturing PMI.

Strong Canadian and New Zealand data Lifts Commodity Currencies

The Canadian and New Zealand dollars rallied strongly today on the back of better than expected economic data. Canada reported a sharp rebound in IVEY PMI and building permits. Last month, the manufacturing activity index fell to a six year low, but activity snapped back quickly in the month of January. New Zealand also reported stronger employment numbers with the unemployment rate dipping to a record low. Collectively, these two pieces of data drove the Canadian and New Zealand dollars higher. Unfortunately the Australian dollar was a laggard as carry trade selling prevented the Australian dollar from following in the footsteps of the Loonie and Kiwi.

Carry Trades Extend Losses as Stocks Reverse

The price action in carry trades or Japanese Yen crosses were extremely interesting today. Over the past few weeks, we have talked repeatedly about how the correlation between US equities and carry trades are breaking down. This morning, when the Dow was up over 100 points, carry trades refused to budge. However, when stocks started to reverse to end the day down 65 points, carry trades sold off aggressively. This indicates that risk aversion is very high in the markets right now and traders are waiting for any reason to sell carry.