Euro: More reasons to be hawkish (page 2 of 2)

Unfortunately the currency pair failed to hold above this level as weaker economic pushed the currency lower.

Manufacturing sector PMI came out much weaker than expected while Nationwide House Prices fell by the fastest pace in 16 years.

Governor Mervyn King predicts further downside risks in the housing markets which may be part of the reason why he has been reluctant to raise interest rates.

Looking ahead, PMI Construction is largely expected to decline, as the sagging housing market coupled with tight lending conditions continue to be hurdles for construction companies. Other than service sector PMI on Thursday, there is no major UK data on the calendar this week.

Australian Dollar hit by dovish RBA comments and weak PMI report

To the surprise of Australian dollar traders, the Reserve Bank of Australia left interest rates unchanged at 7.25% and signalled that despite inflationary pressures, they will probably not raise interest rates again this year as demand growth is expected to moderate.

This stance is validated by the much weaker than expected manufacturing PMI report - which dropped to the lowest level since November 2005.

Australian retail sales and building approvals are due for release this evening. The increase in the sales component of service sector PMI suggests that consumer spending should rise, but RBA Governor Glenn Stevens was particularly concerned about the softness of consumer spending, which makes us skeptical of our typically reliable leading indicator for Australian retail sales.

Japanese business confidence deteriorates but not as bad as feared

Today was a particularly volatile day for Japanese Yen crosses, as the Dow recovered all of its earlier losses.

The Quarterly Tankan report was better than expected, but Japanese business confidence still fell to a four year low as the outlook for earnings remain uncertain.

This is the third month in a row that confidence has deteriorated. The global economic picture has only worsened in the past three months with oil prices taking a larger bite out of corporate profits.

Unlike the other central banks around the world, the currency market is relatively certain that the Bank of Japan will be sitting on their hands for the remainder of the year.

This limits good news from helping the Japanese Yen and bad news from hurting it. Labour Cash earnings and Vehicle Sales on the other hand did not manage to beat expectations, as consumer spending slows down to a crawl, due to rising prices.