What is ECB Officials Saying Ahead of the Central Bank Meeting? (page 2 of 2)

More specifically, they are offering a lower interest rate to people who can make a down payment of 25% or more on their home and hiking the rates for people who borrow more than 75%. This will reduce the ability of UK citizens to finance the purchase of new homes, which would exacerbate the problems in the housing market and slow any eventual recovery. Meanwhile the Bank of England is the only central bank expected to alter interest rates this week. If consumer confidence also proves to be weak, this will build the case for a 25bp rate cut.

Australian and New Zealand Dollars Extend Gains, Canadian Dollar Retreats Further

US Dollar continued its loss against the New Zealand dollar and Australian Dollar, but gained momentum against the Canadian Dollar, with the kiwi reporting the biggest gain against the greenback. Although, no data was released for New Zealand, its gain can be attributed to an overall improvement in risk appetite. The Australian dollar on the other hand rallied despite weaker economic data. The trade balance was much wider than expected, led by a sharp drop in exports while construction sector PMI fell into contractionary levels. The Canadian dollar extended its losses as building permits slipped for the fourth consecutive month, marking the worst bout of releases since 1990. This suggests similar weakness in tomorrow's housing starts report. The once invincible economy, which boasted of remaining strong in spite of its neighbor's loss, is now under pressure as the US slowdown is slowly spilling into the economy.

Japanese Data Improves But Has Limited Impact on the Yen

Japanese economic data is beginning to improve, but this is having a minimal impact of the Japanese Yen. Leading indicators rose from 36.4 percent to 50 percent and we expect this strength to pass over to the Eco Watchers Survey, which is due for release this evening. Labor cash earnings have been on the rise, which should help to boost consumer confidence. Meanwhile the Japanese government is coming closer to announcing a new Bank of Japan Governor. The latest nominee is Shirakawa, the current acting Governor. There is a decent chance that he will be approved by the Liberal Democratic Party and the Democratic Party of Japan. In the past Shirakawa has been seen as a hawk on monetary policy, but economic conditions have changed significantly and as a result, it is not clear whether he will be willing to cut interest rates.