NZD Current Account Balloons above 9% GDP - JPY Trade Balance smaller than expected - EZ Current Account widens - USD LEI data on tap
A lackluster night of trading in Asia and early European session tonight as markets remain stagnant after yesterday's decision by FOMC to keep US rates steady at 5.25%. The statement from the Fed produced few surprises offering no hint of additional rate hikes before the end of this calendar year.
After initial adjustment and volatility all the major pairs slowly went bid against the dollar with EUR/USD rising above 1.2735 and GBP/USD hitting 15 day highs at 1.8950 as traders made bets that interest rates spreads between the greenback and its key trading partners will narrow as 2006 comes to a close.
Most market participants are looking for at least 25bp and possibly 50bp hikes from the ECB and another 25bp hike from the BOE before year end while at the same time expecting the Fed to remain stationary.
In economic news today Euro-zone Current Account deficit widened more than expected as income earnings dropped by 9 Billion euros from 40 Billion to 31 Billion in the month of July. Over the past 12 months EZ Current account deficit has accumulated to more than 40 Billion euro – still a tiny 0.6% of the GDP, but a troublesome trend nevertheless.
The news took some steam out of the early morning rally and the pair essentially marked time ahead of the US Open as traders looked to LEI data and Philly Fed numbers for further directional clues.
In UK, the CBI Industrial trends survey posted its best reading for orders since 2004 printing at -5 from -8 in August. The data confirms the BOE thesis of a steady recovery in the UK Industrial sector and will likely fuel further speculation about a possible rate hike by the Central Bank in November. However, the report also showed that price expectations have moderated markedly since last month dropping to 8 from 13.
The rapid drop in energy costs must have been the key driver behind the decline and should oil prices remain at these levels or fall lower the need for additional rate hikes may decrease.