ECB Leaves Rates Unchanged, Expresses Concern about Growth (page 2 of 2)

Bank of England Cuts Interest Rates to 5.25%
The Bank of England cut rates in line with expectations by 25bp to 5.25 percent, marking the second effort to make policy more accommodative since December. The central bank cited deteriorating prospects for global output growth and tightening credit conditions for consumers and businesses alike. While the Monetary Policy Committee did say that rocketing energy and food prices are "expected to raise inflation, possibly quite sharply," the subsequent cooling effect on demand growth is anticipated to be enough to "return inflation to target in the medium term." Essentially, the Bank of England is more concerned that slowing growth will bring inflation below target than they are concerned that inflation will accelerate out of control, suggesting that more rate cuts may loom on the horizon as long as economic data points to deteriorating conditions.

Commodity Currencies Give Back Gains, but Retracement Could be Temporary
The Canadian, Australian and New Zealand dollars all gave back some of their recent gains today on the back of carry trade liquidation. The Dow ended the US session up xx points, but sharp intraday volatility has weighed heavily on the commodity currencies. Gold and oil prices are higher and there was no major economic data released from any of these 3 countries. Canadian employment and housing starts are due for release tomorrow. The sharp rise in the employment component of IVEY PMI and a jump in building permits suggest that we should see bullish Canadian numbers.

Carry Trades Struggle Amidst Market Volatility
In the past, we have said that carry trades thrive when volatility is low, risk appetite is high and central banks around the world are raising interest rates. Unfortunately with the current market environment not satisfying even one of these qualifications, carry trades have struggled. USDJPY is trading near a one month high but pairs like EURJPY, GBPJPY, GBPUSD, AUDUSD and the NZDUSD all sold off today. The Dow was both up and down over 100 points today before settling up xx points. This type of intraday volatility is and will continue to wreck havoc for carry trades.