Friday May 26, 2006 - 10:33:07 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - U.S. EditionKey Points
â€¢ US core PCE price index the main focus today.
â€¢ This will dictate the mood of global markets in the short-term.
â€¢ BoJ rates remain high.
â€¢ US Michigan sentiment also due today.
Global equity and commodity markets have steadied further overnight and this has left the USD slightly softer, albeit in fairly quiet trade. All eyes are on todayâ€™s US core PCE price index (see below) and market hesitancy is also being compounded by the prospect of market holidays in the UK and the US on Monday. Europe has already been thinned out a little by yesterdayâ€™s Ascension Day (largely public) holiday.
A strong core PCE price index today would rattle equity markets further and this may also see some further position cutting on EUR-USD
. It is not typically positive for a currency if interest rate expectations are boosted solely by inflation concerns, but insofar as it would heighten uncertainty and lead to softer global markets, a move back into USDs and a cutting of USD shorts would be the most likely outcome. A weak inflation number (or even a +0.2% median) would work in reverse â€“ offering relief to global markets as well as keeping a lid on Fed rate hike expectations.
Japanese CPI was largely in line with expectations, but rate speculation remains in the ascendancy and the BoJ tolerance of a higher call rate is not doing much to counter this at the present time. This will maintain support for the JPY, although we would expect the BoJ
to try and stem any further major rises
in the call rate in the short-term, which today has nudged up a
little further to 0.076% (weighted average).
the personal income and expenditure release will include the latest estimate of core PCE prices, the Fedâ€™s preferred measure of core consumer price inflation. Last month, the core PCE price index mirrored the +0.3% showing on core CPI and if it does so again it will serve to further underline current inflation anxieties. In contrast if it comes out weaker than this or there are back revisions lower it would help to alleviate recent inflation worries. The outcome will be highly significant in determining sentiment about several key issues - the June 28- 29 FOMC meeting, global market uncertainty in general and the USD. The final estimate of May Michigan sentiment is also due and with recent ABC weekly sentiment surveys continuing to move lower, the weak mid-month reading on Michigan should at least be sustained.
Data/event EDT Consensus*
US Personal income (Apr) m/m 08.30 +0.7%
US PCE (Apr) m/m 08.30 +0.6%
US Core PCE price index (Apr) m/m 08.30 +0.2%
US Core PCE price index (Apr) y/y 08.30 +2.1%
US Michigan sentiment (May, fin) 09.45 79.5
Latest data Actual Consensus*
JP CPI Tokyo (May, core) y/y +0.4% +0.3%
JP CPI Nwide (May, core) y/y +0.5% +0.5%
JP CSPI (Apr) y/y -0.3% -0.1%
GB BBA mortgage approvals (Apr) y/y -4% +33% last
* Consensus unless stated
Ian Gunner 44 20 7163
ï›™2005, Mellon Financial Corporation Note: Although obtained from sources believed by us to be reliable, Mellon Financial Corporation and its affiliates cannot guarantee the accuracy or completeness of the information upon which this report is based. This report does not purport to disclose the risks or benefits of entering into particular transactions and should not be construed as advice in any specific instance. The views in this report constitute our judgement as of this date and are subject to change without notice.
Ian Gunner 44 20 7163 5996 06.40 EDT Monday May 31 2005
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