Wednesday, May 14, 2008

Europe begins talking about Inflation

EU Minister's were chirping today about how consumers would be "Suffering" in the wake of higher food and energy prices.

``The least well off in our societies are very seriously exposed to a loss of purchasing power due to the increase of oil prices, of commodity prices and food prices,'' Luxembourg Finance Minister Jean-Claude Juncker told a press conference in Brussels late yesterday after leading a meeting of euro-area counterparts. ``It's up to public budgets to react to this loss in purchasing power by helping out the least well off.''

Fed governor's were also talking today about how Inflation will be with us for a while.

Cleveland Fed President Sandra Pianalto said in a speech in Paris today that consumer prices are rising faster than she'd like and that inflation is a ``key risk'' to the economic outlook. Pianalto is a voter on the FOMC this year.

All in all, this talk signals to me that interest rates are not going lower (Fed Fund futures are building in a 90% chance of a 25bp rate increase by year end). The Fed has signaled that it will increase it's auctions if the credit crunch continues to be a problem.

While markets have improved, they remain ``far from normal,'' Bernanke said today in a speech to an Atlanta Fed conference at Sea Island, Georgia. ``We stand ready to increase the size of the auctions if further warranted by financial developments.''

This talk sent rates higher and the dollar against the Euro little changed. I still prefer to be short Euro and Gbp against the dollar. The U.K. looks to be in the middle of Stagflation (but then again isn't everyone) which is never a good thing.

Don't get "Married" to any position's. Better to take small profits when available as I am not sure we will see a real substantial trend in the near future.

Good Luck and Good Currency Trading

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