Following on from the BoE Interest announcement today – Bank of England Governor Mervyn King is setting aside his inflation target to protect the economy from the biggest budget cuts since World War II. As a split widens on the Monetary Policy Committee on the danger posed by rising prices, King insists it may be a “considerable” time before the benchmark interest rate of 0.5 percent returns to “normal.” The nine-member panel are certainly dovish in terms of their stance on interest rates, growth and Inflation however inititally following the release today the market is reacting well.

Looking at price action with the dollar we found respite overnight as better than expected US data sparked a round of short covering thus offering relief from its recent sell off. The July services ISM came in ahead of forecast, with the ADP employment report also surprising on the upside ahead of tomorrow’s official payrolls numbers.

Today we are trading with a slightly stronger tone (EUR$ 1.3145, $JPY 86.30) – the back up in US yields and profit taking ahead of tomorrow’s key non farm payrolls are the key drivers as we head into the North american trading session. Consolidation ahead of NFP and technical levels continues. 1.5970 proved a bridge too far for currency pair and profit taking sees us open at 1.5850 this morning.

Overnight the New Zealand saw poor jobs data hit the currency as bonds rallied, this is also evident within the Forex markets today wth the Kiwi down neally 1.3% against the Pound with short positions and liquidity up against the commodity linked currency.

The key focus today in terms of economic data releases will be the release of the Bank of England and ECB rate announcement. The Bank of Englad kept everything unchanged however we will have to wait until the publication of the minutes of the meeting in two weeks time for details of the discussions. With the ECB, markets will be closely watching the post meeting press conference to see how the central bank views current economic conditions. Trichet could put renewed pressure on the dollar if he hints of a divergence between the outlook for eurozone and US monetary policy.

If you would like to discuss your requirement with me further or if you would like a live trading quotation against any of the 156 most actively traded currencies do not hesitate to give me a call.

Tom Trevorrow

Senior Trader

+0044 1736 335264

tom.trevorrow@torfx.com