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Daily Forex Commentary

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Eurozone PMIs

Thu, Aug 21 2008, 06:14 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The minutes from the MPC meeting at the BoE earlier this month showed that seven members voted in favour of leaving the bank rate unchanged whereas one (not surprisingly Tim Besley) voted in favour of a hike, and one (just as unsurprisingly David Blanchflower) voted in favour of a cut. The most interesting about the minutes was the distribution of votes since the inflation report last week highlighted the basis for decision. Besley argued that a hike in spite of slowing growth was necessary to contain inflation and inflation expectations.
Blanchflower argued that a cut was necessary since the high inflation was temporary and that there is a risk that inflation will fall below target in the medium-run due to a significant fall in growth. The release of the minutes had unnoticeable impact on the pound.

The market will be watching the German and Eurozone PMIs today. We have seen some terrible readings the last few months and especially the southern European PMIs have been worse than terrible. Even though the oil price and the euro have fallen the last few weeks, our economists are still forecasting even weaker PMIs for August than in July (so does the market).

Otherwise, Philly Fed from the US is due in the afternoon, retail sales from the UK shortly before noon, and GDP from Norway at 10 a.m.

Emerging Markets

By the Emerging Markets Team

Yesterday was a very quiet day indeed for risky assets in general and EM in particular.
Following a few days of renewed financial jitters, markets calmed down yesterday and most EM currencies ended the day more or less unchanged against the EUR. Financial jitters are obviously not what EM currencies like best, but we still think the TRY is better placed to weather the storm than the ZAR. We thus stick to our long TRY and short ZAR positions, and the latter can be seen as a hedge to the former. In fact, a short-term rise in EUR/USD seems to be as potent a threat to the TRY as financial worries as the TRY in periods follows the dollar quite closely - and the EUR/USD rebound we have seen since the beginning of the week has likely been a major contributor to TRY underperformance. The question remains whether the first drop in EUR/USD was too much, too fast. If we are to see EUR/USD head back towards 150,this could drag the TRY down with it - but we believe this would only be a temporary phenomenon. A rebound in EUR/USD could offer some reprieve for the Eastern European currencies, which have been hit by Eastern European disease recently - a combination of weakening European growth and waning central bank support. We would use any rebound to sell the CZK and the PLN.
Today offers Polish Core inflation and Turkish inflation expectations - both numbers that could make markets rethink the outlook for central bank rates. Upward surprises should be currency supportive. Elsewhere, we will keep an eye on the Euro Area PMIs.

Today’s Key Events

• 09:30 Unemployment, SEK

• 09:30 PMI, DEM

• 10:00 PMI, EUR

• 10:30 Retail Sales, GBP

• 11:30 RBA Bulletin, AUD

• 13:00 CPI, CAD

• 16:00 Philly Fed, USD

• 01:50 BOJ Minutes, JPY

• Download Full Daily Forex Commentary

Published on  Thu, Aug 21 2008, 07:01 GMT