NEWS / Monetary Policy

Dollar remains depressed, FOMC verdict keenly awaited.

August 7th - Although the dollar has managed to recover a little ground after Friday??™s disappointing payroll data, overall traders are remaining shy of the US currency and this theme is likely to continue right through until the FOMC verdict is released tomorrow. Expectations are now undoubtedly that Ben Bernanke and his team will see fit to leave interest rates on hold but this isn??™t certain and the tone of any accompanying comments will also be seen as significant, most notably whether this will be a one-off break or will it mark the start of a longer period of stagnant yields. Undoubtedly inflationary pressures look set to linger ??“ the latest risk again being from oil prices after news of a pipeline shutdown in Alaska ??“ and this is something the Fed will be mindful of as we approach the latter part of 2006. In the shorter term there are some items of economic data that may provide a little direction today ??“ a fall in the Japanese leading economic indicators has left the Yen under some pressure even though the result was in line with expectations, and as the session progresses UK productivity data will also be watched. Any shortfall here will doubtless raise further questions as to just how prudent last week??™s rate hike was at the Bank of England and could see cable test 1.90 on the downside but otherwise it??™s going to be a case of all eyes on the Fed tomorrow at 3pm EST??¦

Tim Wilbraham and Enis Mehmet