Today’s Comment

The markets are confused to such an extent that even small pieces of news can turn the sentiment. Most recently the weaknesses in the euro zone have been in focus, and an article in the Financial Times Deutschland quotes Jürgen Stark, a German ECB member, for saying that German banks need further capital, which increased the pressure on the euro this morning. However, the markets find it difficult to stick to one theme, and focus may quickly change, for instance, if we see a new series of disappointing economic indicators and monetary easing in the US, or if next week's economic indicators for China disappoint (China will release a number of interesting indicators next week, e.g. CPI, retail sales and industrial production).

With respect to the macro-economy, Bank of England will attract attention today. The UK is in a moderate upswing, but on the other hand inflation is somewhat above the medium-term target of 2%. This can, however, primarily be attributed to temporary circumstances (changes in VAT) from which the effect is not expected to weaken until late 2011. Therefore inflation should not force BoE to hike interest rates. The minutes form the previous interest-rate meeting revealed that all options are open. We expect interest rates to be held at 0.5%. If BoE does not change its monetary policy at its meeting on Thursday, we will presumably only see a brief press release, and we will have to wait for the minutes before we have a better indication of the considerations on the part of the central bank. Therefore, if things develop as expected, there are no prospects of a major movement in pound sterling following the interest-rate announcement. If a monetary easing is announced, pound sterling will most likely weaken.

Fed’s Beige book, published yesterday, indicated continued growth in the US economy, even though there are clear indications that the pace has slowed down.
Generally the report is in line with the previous announcements from the Fed that despite the more moderate growth in H2 2010, growth in 2011 is still expected.


Today’s Key Events

  • 08:00 Consumer prices (DEM)

  • 09:30 Consumer prices (SEK)

  • 10:30 Trade balance (GBP)

  • 13:00 BoE’s interest-rate announcement (GBP)

  • 14:30 Balance on goods and services (USD)

  • 14:30 Jobless claims (USD)


Today’s Chart – EUR/USD (4-hour chart)

EURUSD