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202331 Resource 128466 128654 128654 1209109588602 1209109588602 Controlled European Mid Morning Update 25th April 2008

Inflation, interest rates and reality

Releases from Europe:           March                                            Forecast   Actual German Import Price Index   (MoM)   +0.6%    +0.4% German Import Price Index    (YoY)   +5.9%    +5.7%A little relief from persistent price rises but the annual 5.7% rise is still quite stiff and is still a number to watch out for in future. The following economic releases are due today:Q1 U.K. GDP            (QoQ)   +0.4% U.K. GDP            (QoQ)   +2.6%March Euro-zone M3    (3MoY)   11.0% Euro-zone M3      (YoY)   10.6%April University of Michigan Confidence (F)   63.5 This week has seen Australia and Japan reporting higher inflation and we already know the situation in Europe and the States. It’s not fresh news. We all know what is causing it and why it is happening. As usual the market has interest rates as a permanent fixture in the front of its mind. Higher inflation equals higher interest rates and vice versa. Will the RBA hike rates? Will the BOJ? Will the ECB?Hell no, why should they? What good would it do?As the economy minister Ota commented, rising inflation that has not been generated by domestic demand and while wages remain stagnant is just not a healthy sign. Even the word stagflation is one that hangs heavy at the backs of officials’ minds as they see Japan’s export life blood of GDP slowly hemorrhaging to make one wonder whether the country could dip back into recession with inflation rising…There is no difference in Japan in seeing a higher percentage of household budgets having to be allotted to higher food and fuel prices and when wages are stagnant this will act as a dampener to domestic demand. Let’s face it, in Japan’s case what benefit is there for businesses borrowing at 0.25% rather than 0.50% when consumers cannot afford to buy goods? Even ECB governing council member Michael Bonello expressed his own opinion by saying “On the basis of the data we have at hand and the ECB's rationale for monetary policy strategy it is very difficult to make an argument for higher interest rates.”And here we are with the BOJ and FOMC meetings next week wondering what they’ll do. The BOJ will do has it has done for the past umpteen meetings. Nothing.The FOMC are rumored to be cutting rates by 0.25% but calling it a day for now. They have come to realize that there is only so much that can be achieved through monetary policy. It certainly cannot have any impact at all on the factors that are fueling oil and food prices. Lower interest rates have eased the credit crisis but even then there’s a limit to what can be achieved when it’s more a case of confidence – or lack of. From here on the market will have to concentrate on economic performance and forget interest rates… Note important support and resistance areas:         USDJPY        EURUSD       USDCHF       GBPUSD Res:  105.07-37    1.5751-75    1.0505-44    1.9866-77 Res:  104.59-72    1.5670-20    1.0423-50    1.9753-75Spt:   103.70-90    1.5557-99    1.0335-65    1.9659-84 Spt:   103.45-70    1.5497-10    1.0270-05    1.9599-09 9 application/xml false BOE BOJ currencies ECB Fed Forex FX inflation Interest rates Want to know more about the Forex market? Learn about currency trading http://www.gftforex.com/land/index.asp?aid=446 Mozilla/4.0 (compatible; MSIE 7.0; Windows NT 5.1; hc; .NET CLR 1.1.4322; .NET CLR 2.0.50727; MS-RTC LM 8) 127.0.0.1 127.0.0.1 ICopsey 202.216.243.97 false true false false true 128466 blog blogsite/GFTForex/web