Is the Euro Becoming Immune to Hawkish Comments? (page 2 of 2)

This may be partially due to the fact that even though online property search firm Rightmove reported a 1.2% rise in house prices during the month of May, they also criticised UK homeowners for raising prices in the current market environment.

Even Bank of England Governor King has warned that prices are set to fall further, but sellers have refused to adjust their prices to more realistic levels. If this trend continues, the housing market inventory will grow and eventually prices will have to come down.

Either way, a rate cut by the BoE is not on the cards right now according to the interest rate market.

The spread between 2 and 10 year gilts are on the brink of inverting for the first time in six months, which means that no one expects the Bank of England to cut interest rates anytime soon.

We expect this same concern about inflationary pressures to be reflected in Wednesday's release of the minutes from the latest Bank of England meeting.

Australian Dollar hits 24 year high, Canadian Dollar continues to rise

The Australian dollar hit a fresh 24 year high at the opening of the Asian trading session, but those gains were quickly erased following weaker Australian and New Zealand economic data.

Imports decreased 3% in the month of April, reflecting the softer demand for external goods by Australians.

The New Zealand dollar on the other hand is suffering from yet another piece of disappointing economic data. The service sector PMI index slipped from 50.8 to 48.9 in the month of April, indicating that activity is now contracting.

Last week, we saw a decline in retail sales and based upon the latest the drop in the employment component of the PMI report, the labour market and domestic demand should remain weak. The Canadian dollar on the other hand was the only currency that managed to strengthen against the greenback today. There was no economic data released, but we do expect stronger Canadian CPI on Wednesday.

Bank of Japan expected to keep interest rates unchanged

With no major economic numbers other than the US leading indicators report released this morning, carry trades have moved in lockstep with the Dow. US stocks were up more than 150 points intraday, triggering a sharp rally in carry trades.

However other than USD/JPY and CAD/JPY, none of the Japanese Yen crosses managed to hold onto their earlier gains. The Bank of Japan is expected to leave interest rates unchanged tonight, which should be a nonevent for the Japanese Yen.