AUD employment stronger
CHF Unemployment at one year low
GBP BOE stay on hold as expected
EUR ECB goes to 3.50%
The dollar traded either side of 1.3300 as both the ECB and BOE followed script in their monetary policies. As expected, the BoE maintained its repo rate at 5% but the strong appreciation in the HBOS housing survey demonstrated that UK housing market remains red hot rising at nearly double digit annual growth rates. Indeed, until such time that housing prices begin to cool, the UK central bank is likely to maintain a tightening bias, wary as it is of further inflation in the sector. Therefore, although other UK economic indicators have recently started to show decidedly mixed results, traders continued to price in the possibility of yet another rate hike by the BoE given housings primal importance to UK monetary policy considerations.
Meanwhile, the ECB raised rates as expected to 3.50% narrowing the interest rate differential in the EUR/USD to 175 basis points. Euro-zone data has remained robust over the past few weeks suggesting that the regions recovery is taking hold as it continues to provide support for ECB hawkish stance. However with the unit having gained so much ground against the greenback, many FX players wonder just how much further could ECB tighten without endangering economic growth.
With the pair at the 1.3300 figure the recent rally appears to have run out of steam as traders seek new reasons to lay down fresh dollar shorts. In fact, yesterdays ADP number which projected a much stronger NFP of 168K and which we tend to believe given the surveys good accuracy over last three months could provide the spark for a much needed dollar counter trend rally next week. If US employment growth shows resiliency despite the marked slowdown in housing the whole recession in 2007 scenario may have to be revised prompting speculative accounts to cover their recently placed dollar shorts.
We are at FXCM expo in Vegas for the next few days. Terri Belkas will cover the US Open in our absence. For those of you coming we look forward to seeing you.
