Tuesday 15th July 2008

Another day another Dollar…(though the Dollar is worth a little less today than yesterday).

Mr Bernanke will be talking today at his semi-annual monetary policy testimony before the Senate Banking Committee. He will probably highlight the current concerns over the spiralling energy and commodity prices and their resultant effects on inflationary pressures. He will probably emphasise the urgent need to control these. It is unlikely though, that we will see him give a clear indication as to when to expect interest rate rises in the US. The tone of his address however will say more than words ever can. The testimony, along with US PPI & Retail Sales (both due out around lunchtime) will cause traders to cut short their lunches today and be back at their desks prior to the 1.30 data release time. Retail sales are expected to come in flat, a solid result considering the rise in unemployment and fuel prices. PPI is expected to rise, which won’t be a surprise to anyone but will ensure that inflationary pressures remain at the forefront of minds.

A unanimous rate decision last night saw BoJ leave their rates on hold, this was expected and likely to have a neutral effect on the currency. They did imply in their statement that followed however that they would not hesitate to push rates up should conditions dictate.

In the EuroZone today the only data out is the ZEW survey in Germany. This is expected to come in lower than the previous release as the market sees Germany’s industry weakening sharply on the back of higher oil prices, stock market losses and declines in monthly orders. An article in this morning’s Daily Telegraph in fact suggests that the EuroZone as a whole is in fact already deep into a recession with the likely result being that their economy will suffer even more than that currently being experienced in the US.

At home today we have already seen the release of the UK RICS house prices survey in which home sales fell to their lowest for at least 30 years - extremely weak. The ratio of sales to stocks of unsold property fell from 19.4% to 18.2% in the three months to May, meaning that for every 100 properties on the market only eighteen were sold. We will also see CPI out at 09.30, with inflation expected to increase by at least 3.5% with the largest factor being the 5% increase in petrol prices.

With the all the interesting data out from the US unless there is a break over 1.6000 in EUR/USD we may not see much action. Another reason for the EUR to remain subdued may be the massive amount (€49Bn) Euro coupons and redemptions released in the Far East over the last two days

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