| 7/10/2008
3:15 pm: EUR/$..1.5778 $/JPY..107.04 GBP/$..1.9762
$/CHF..1.0274 AUD/$..0.9618 $/CAD..1.0088
Greenback Weakens amid
Lingering Fears
The dollar was softer on Thursday, drifting lower
to 1.5800 against the euro and 106.69 versus the
yen. Fears of °ongoing financial turmoil,
as described by Fed Chairman Bernanke in his Congressional
testimony, continue to plague the currency. Nonetheless,
Treasury Secretary Paulson tried to alleviate
fears over the solvency of Fannie Mae and Freddie
Mac, reaffirming that both are "adequately
capitalized".
The US calendar was light today, with just the
release of weekly jobless claims, which unexpectedly
improved to 346k, down from 404k a week earlier.
Traders will look ahead to tomorrow's May trade
deficit and the July University of Michigan consumer
sentiment survey, which remains mired near multi-decade
lows. The July preliminary survey is seen declining
to 55.5 from 56.4, while the expectations component
is estimated to fall to 48.0 from 49.2.
Traders will also turn to reports from Canada
on Friday, consisting of May trade balance, and
the June labor report. The unemployment rate is
expected to remain unchanged at 6.1% while the
employment change is seen increasing to 10.0k
from 8.4k. The trade surplus for May is estimated
to decline to C$5.3 billion, from C$5.11 billion
a month prior.
Bank of England Stands Pat
The BoE, as expected, left monetary policy unchanged
at 5.0% when it announced its decision earlier
in the session. Despite inflation creeping higher,
deteriorating fundamentals continue to plague
the UK economy prompting speculation that the
next move by the Bank may actually be another
rate cut. In an interview with Bloomberg, former
BoE board member Goodhart said that "output
is going to fall, unemployment is going to rise,
possibly quite sharply¡±, adding
that the ¡°economy is getting into quite
a recession". He offered a grim assessment
for the outlook, saying "it's as difficult
and as serious a situation as the MPC has ever
had to face".
Data released overnight reaffirmed the dire state
of the UK housing market with Halifax house prices
declining by more than forecast. The June Halifax
price index fell by 2.0%, missing calls for an
improvement for a 1.0% decline from a 2.4% loss
in May. The annualized figure plunged by 6.1%,
sharply greater than the 3.8% drop in the previous
year.
In the coming weeks, markets will digest several
key UK reports to provide further insight into
the state of the economy, with CPI, unemployment
rate and GDP due out. Additionally, the minutes
of today's BoE meeting will be released on July
23rd. The minutes will no doubt be closely scrutinized
to gauge how concerned the MPC is with the deteriorating
outlook for the economy and determine the probability
for a BoE rate cut in the coming months.
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