Euro, Pound on Ease Ahead of Fed Decision (Euro Open)

Euro and Pound traders took a break during the Asian session, ahead of the Federal Reserve’s meeting. It is expected that the Fed will make note of the recent decrease in the U.S. unemployment rate and orient its language toward that fact. Chairman Bernanke and his Board of Governors may revise their language to assure the public that they will act before any form of inflation creeps ahead.

Key Overnight Developments

• Japan Producer Prices Unexpectedly Rise on Imported Inflation
• Australian Wages Meet Slowest Gain in Five Years

Critical Levels



Price action for both the Euro and Pound continued to be subdued against the U.S. Dollar. Traders, in anticipation of the Federal Reserve’s decision, were hesitant to take on new positions ahead of the crucial meeting.

Asia Session Highlights

Japan's Domestic Corporate Goods Prices rose by the largest monthly amount in exactly one year. The 0.4% jump in the cost of raw materials comes after Japanese companies found themselves paying less for such goods nine months in a row. Much of the recent upswing in costs can be attributed to a 7.5% in the cost of petroleum and coal and not necessarily a resurgence of domestic demand-led inflation. Domestic demand-led inflation must be ruled out because it appears as though many of these costs were imported. Indeed, import prices rose 1.1% while the cost of petroleum and coal that was imported rose 7.0%. This was coupled by a 1.5% decrease in the price of goods shipped abroad, which would imply that domestic prices had actually fallen in price.

Australian Quarterly Wages grew at the slowest pace in over five years, as full-time jobs were slashed in favor of part-time ones. The 0.8% gain in labor costs came during a period which saw the unemployment rate rise 0.3 percentage points to 5.8% and 11,100 net full-time positions closed. A lack of wage growth contributed to the stunningly depressive performance of the June retail sales figure. Indeed, the month saw such spending plummet 1.4% after economists had forecast it to actually rise by 0.5%. A market reaction would be inappropriate given the Reserve Bank of Australia's recently revised growth forecast. At it's regularly scheduled meeting last week, the bank predicted that the domestic economy would expand 0.5% in 2009, up from their initial estimate of a 1.0% economic contraction.