Daily Market Comment

25.07.2008

Currencies remain volatile within ranges, with a weaker than anticipated German Ifo business survey and poor flash PMI’s pushing the euro to two weeks lows versus the dollar early yesterday. The release cooled talk of further ECB hikes, though the central bank will not be pleased to hear that inflation is pushing up German wage settlements. As the day progressed the dollar came under renewed fire, falling versus the yen and giving up gains versus the euro, when it was announced that US existing home sales fell 2.6% in May. Jobless claims jumped more than expected, with steep losses on wall Street also hitting sentiment. The dollar will be cautious ahead of today’s releases, which include durable goods and new home sales for June. Both are expected to be weak. Meanwhile, this morning’s M3 money supply data from the eurozone should highlight that growth in monetary aggregates remains elevated and cause of concern for the ECB.

Weekly Market Brief

25.07.2008 Weekly Market Brief - 25th July

Schedule of data releases and key market events for 28th July - 1st August

Central Bank Watch

03.07.2008 ECB WATCH - 3RD JULY 2008

The European Central Bank increased rates by 0.25% to 4.25% at its policy meeting today. The rate increase was in response to what the ECB sees as the growing upside risks to price stability. However, Mr Trichet gave no indication that further tightening is in the pipeline. The ECB, then, is facing what could be described as something close to stagflation in the eurozone economy. This will make it difficult for it to hike rates any further. With the economy likely to have weakened considerably over the course of 2008, we could well see the ECB cut interest rates in 2009, provided inflationary pressure abate.

Exchange Rate Monthly

24.07.2008 Exchange Rate Monthly - July 2008

After a relatively strong performance in June, the dollar is on the defensive once again on renewed concerns about the outlook for the US economy and, in particular, the financial sector.The more recent fall back in oil prices, as well as a better than expected round of half year earnings reports/trading statements, has brought some respite. The dollar has recovered from fresh lifetime lows versus the euro, moving back into a $1.55-1.59 trading range. We still see it as exposed to a renewed test of the $1.60 level and beyond over the coming weeks. At the same time, however, the euro’s appeal appears to be fading as data indicate that the eurozone economy has lost considerable momentum.