Paulson in China

Usd continued its choppy trading pattern in Asian session regaining some of it loses to the Eur. Aud, Nzd and Cad performed well in line with stronger commodity prices and weaker Usd. Recently the greenback has been hightly reactive to the price of crude as well as shifting interest rate expectations. Currently the market is split between 25bp & 50bp cut. Whether this will represent the final cut to a dramatic easing cycle is still a moot question. We are currently leaning to a 50bp cut but could easily shift with the release of ISM – non manufacturing data and payrolls figures.

Yesterday Bernanke testified to the Joint Economic Committee. He acknowledged that the economy "will not grow much, if at all, over the first half of 2008 and could even contract slightly" but steered well clear of the "R" word (as to be expected). On the inflation front his comments were slightly less hawkish then the Fed's last accompanying statement.


In China U.S. Treasury Secretary Paulson issued a dire warning that "it is dangerous if you don't have a renminbi that reflects underlying fundamentals." In addition he stated that "appreciation has been good." So far Paulson's two day tour of Beijing has been uneventful but we weren't expecting much.

Today's ISM non manufacturing survey will hold the markets interest for a moment but will be overshadowed by Bernakes testimony and Friday's payroll (especially after yesterday unexpected 8k ADP survey).