Although we had some interesting price action today, we didn’t have much information to explain the move. The dollar embarked on a 100 pip rally beginning around lunchtime. Traders are saying that the market is thin and everyone is sitting around waiting for Greenspan’s speech tomorrow on the economy at 10am EDT. It is left to Greenspan tomorrow to tell us if we are really near the end of the tightening cycle or if we have more room to go. Thanks to Dallas Fed President Fisher, the newest member of the monetary policy committee, Greenspan will now have to tackle the eighth-inning talk.

Earlier this week, Greenspan skirted the issue of monetary policy and the overall health of the economy, this time around, he will need to address the issue directly. Although headline consumer price inflation was strong during the month of April, core prices have been weak, highlighting the changes in inflationary pressures. Greenspan may also have to address labor market growth either in the statement itself or during questioning after last week’s pathetic number. We are sure that we will also be hearing more about the Interest Rate Mystery and the conundrum surrounding long-term rates tomorrow. Meanwhile US inventories jumped a whopping 0.8% while sales rose 1.5%. From the looks of it, factories do not need to trim their inventories at this point and it seems that demand has been holding up, which provides a glimmer of hope for the business sector.

Euro

Like a falling knife, the euro dropped a hundred pips on little news. Following up on the ECB rate cut talk, council member Weber supported Trichet’s recent comments and said that “it is very much the question of whether spending would improve with a rate cut. Today's business people want to earn their investment back in three to five years. This means that they will only invest if they are sure that there's demand. Whether rates are a quarter or half a percentage point lower, that does not matter much." He also highlighted the continued presence of inflation risk, making it difficult for the central bank to lower rates. This should be euro positive, but the market for the time being, the market remains transfixed on tomorrow’s speeches by Fed Chairman Alan Greenspan.

British Pound

Piercing the 1.8400 figure briefly, the British pound fell subsequently on European related releases in the tail end of the US session. As speculators positioned themselves ahead of the Bank of England’s decision on short-term interest rates, expectations are mounting after a slew of previously disappointing economic data weighs heavily on the final release. In addition to declines in manufacturing and industrial production, leading to dips in overall output growth, consumer demand also remains sluggish in the United Kingdom.

In the six months through March, consumer spending increased at the slowest rate in more than four years. As a result, with the housing boom mania dissipating and inflationary pressures contained, speculators are anticipating a probable rate cut before any interest rate increases can be considered. Bolstering this notion has been interest rate futures contracts, sinking to a 4.56 yield versus a high of 5.21 earlier on in March. In addition to the upcoming rate decision, market players contemplated the release of this morning’s BRC Shop Price Index. For the month of May, prices rose the highest in a year by 0.37 percent. Although this is positively comparable to the decline of 0.02 percent witnessed last month, the incremental rise will do little to sway the overall inflationary component of the bank’s release.

Japanese Yen

Bouncing back above the 107 figure, the Japanese yen broke its recent four session trend on news that currencies will not be a major topic of conversation at this weekend’s G7 finance ministers meeting. China is a big issue and the ministers are recognizing that it may be a futile effort to discuss it since everyone knows that China needs to revalue and China knows that the world wants them to revalue, but this wont necessarily change the country’s desire and timing on revaluation. Previously, speculation had been mounting on the increasing probability of a push by major nations including rising pressures from the world’s largest economy, the United States.

However, with the topic off the table, speculators decided to pare back positions as revaluation efforts may not be forthcoming. Additionally, economic data fared rather poorly, leaving the Japanese economy with little to be optimistic about. According to April’s co-incident and leading economic index data, growth may in fact be slowing. For the third straight month, leading indicators fell below the expansionary reference level of 50 from a prior 36.4 percent print. Subsequently, the co-incident index plummeted below the previous 70 percent release to 44.4 percent. Although rather disappointing, a bright spot shone through on a better eco watchers survey figure. More closely tied to general business sentiment, the release peeked above 50 percent for the first time in eight months. A positive sign, the consensus may need more evidence before expansionary conditions can be definitively bolstered.