Talking Points<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
· JPY <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />EcoWatchers slips from month prior
· UK Visible Trade Balance marginally better
· UK BOE raises rate to 5.00%
· US Trade Balance on tap
Pound, Euro Yen Range as BOE Raises Rates
An uneventful night of trade in the currency markets as traders digested the implications of a Democratic sweep of Congress with the greenback feeling only the mildest of selling pressure on the prospect of change of power in the US capital. With most of the political news out of the way, however, focus quickly returned to economics as the general consensus of most market players coalesced around the idea that any policy changes in Washington DC were unlikely to be dramatic.
In Japan, both the money supply figures and the Eco watchers survey offered little fuel for frustrated yen longs, as both sets of data showed relative softness. Japans money supply grew at anemic 0.2% on a month over month basis suggesting that the system is still suffering from the negative impact of the July rate hike as Japanese organic demand for funds continues to be lackluster at best. BoJ monetary officials are therefore once again trapped in a difficult situation, helplessly watching EUR/JPY ascend the 151.00 barrier but unable to take any meaningful policy action against it for fear of interrupting the countrys fragile economic recovery. The Japanese consumer confidence also waned a bit over the period with Eco watchers printing at 50.8, lower than last month 51.0 reading but still above the 50 boom/bust level.
Finally as we go to print the BOE has raised its benchmark rates to 5% but in a classic buy the rumor sell the news dynamic cable sold off in the immediate aftermath of the announcement. One possible reason for the drop aside from sheer profit taking may be some trepidation on the part of speculators that the cumulative weight on BOE rate hikes could begin to weigh on UK consumer sentiment by increasing debt service costs. Clearly, the central bank is confident hat that the UK economy can absorb the additional rate hikes, but time will only tell if the central banks hawkish stance at the time of clear evidence of global economic slowdown may in fact be a case of too much tightening too soon.
