Euro in Range, Sterling Retreats after Central Banks on Hold

Euro in Range, Sterling Retreats after Central Banks on Hold

Euro stays in tight range while Sterling retreats mildly term ECB and BoE left rates unchanged. ECB kept rates unchanged at 4.00% today. In the following press conference, Trichet said that even though policy stance is still on the "accommodative side" and inflation risks remains on the upside in the medium term, more information is needed before the next policy move. Also Trichet said that it's too early to draw conclusion from the current correction in risk reassessment. No "vigilance" was used by Trichet this time which suggests that ECB will be on hold for a while, at least, till Oct. One thing to note is that Trichet emphasized a few times that ECB has to ensure that money markets function properly whatever the interest rate is and that this is completely separate topic to maintaining price stability. Also, ECB announced a new long-term refinancing operation as a supplementary operation will be conducted, the details of which will be available right after the press conference.

BoE kept rates unchanged at 5.75% as widely expected. In the accompanying statement BoE expect inflation to remain close to its 2% target, or a "little below", in the next few months. Also, "tentative signs of a lowing in consumer spending" is noted. But "indicators of pricing pressure remain somewhat elevated. " Regarding the recent credit crunch, BoE noted that it's too soon to tell how the disruption in financial markets will impair the availability of credit to companies and households but will monitor closely the evolution of both "credit spreads" and the "quantities of credit extended". more details will be available in the minutes to be published on Sep 19.

From US, jobless claims dropped more than expected to 318k. Q2 productivity accelerated more than expected to 2.6% while unit labor costs slowed to 1.4%, suggesting reduced risk of wave inflation. Next will be ISM Non-manufacturing Index. Dollar has been pressured since yesterday's poor ADP and pending home sales. Additional pressure will be seen in case of downside surprise in today's ISM non-manufacturing index as markets are already speculating and poor NFP number tomorrow.