Central Banks Meeting
Euro/dollar plumbed a 6 day low near 1.4070 in London's morning but then recovered toward 1.4150 (yesterday's US close) as Trichet's post ECB meeting commentary termed current rates "appropriate," implying no rate cut before September. The ECB, BoE, and Bank of Canada rate announcements today were all for unchanged rates, as expected. One surprise was the ECB GDP forecasts, which were slashed more than expected, taking the midpoints down from -2.7% to -4.6% for 2009, and from 0% to -.3% for 2010. Still, FX strategists view that EZ indicators will have stabilized by September, obviating need for further rate cuts. The ECB's covered bond purchase program was not changed, and markets seem unimpressed with its version of QE (or not!). Today's UK Halifax house price survey was a significant upside surprise at +2.6%, another sign that UK housing improvement appears ahead of the US, and GBP strengthened mightily against USD and EUR, though it collapsed after the BoE announcement contained nothing new enough for traders. Yesterday's sharp and surprise USD buying vs non-yen G10's is still being dissected, traders citing renewed risk aversion from weaker than expected US data (ISM services PMI and ADP job loss report). AUD crashed yesterday from an 8 month high over .8200 to under .7900 earlier today, albeit recovering now as USD selling picks up on a sense yesterday's selling of the risk positive trade was overdone. Hence, while position fine-tuning is the theme ahead of tomorrow's non-farm payroll report, the bias should be toward lower USD. Except against yen, still anchored around 96.
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