Expert Analysis of Today's Market

• The dollar traded mixed in volatile trading Wednesday. Sterling traded near a 2 1/2-month low versus the yen and the weakest in 2 months against the Swiss franc as traders unwound carry trades. The Swedish krona declined the most in 7 weeks against the euro as investors avoided riskier assets. The Australian and New Zealand dollars fell as investors cut carry trades. The Canadian dollar retained gains versus the dollar and yen after oil prices fell from a record high reached earlier in the day. The European Central Bank and Bank of England are expected to keep their interest rates unchanged at tomorrow’s meetings but raise them by the end of the year.


• The EUR/JPY fell as investors trimmed riskier assets funded by loans in Japan amid concern subprime mortgage losses may hurt credit markets. If support at 162 is broken, the pair will fall to 160.

Financial and Economic News and Comments

US & Canada

• The report by ADP and Macroeconomic Advisers showed US employment growth of 48K in July, falling far short of expectations of 100K. The June report was downwardly revised to 143K from 150K. The negative payrolls forecast from the ADP report seemed to indicate the job market could be faltering. If the payrolls number on Friday comes in that weak, the dollar will go lower.


• The ISM manufacturing business index fell to 53.8 in July, from 56.0 in June, the Institute for Supply Management reported. While less than forecast, the index matched 2006’s average and any number above 50 signals expansion. The report flagged a continuation in inflationary pressures, with the prices index at 65.0 in July, from 68.0 in June. The July new orders index declined to 57.5, from 60.3 in June, and the production index fell to 55.6 from 62.9. The export orders gauge increased to 56.5 from 56. The manufacturing employment index was 50.2 in July versus 51.1 in June, while the inventories index rose to 48.5 from 45.3.


• US pending home sales rose at a seasonally adjusted annual rate of 5.0% to 102.4 in June from 97.5 in May, the National Association of Realtors said. The last time pending home sales rose was February.


• US Treasury Secretary Henry Paulson said he is confident about the strength of the US economy and suggested it can weather equities sell-offs. “As an economic matter, this is largely contained because we have a healthy and diverse economy,” Paulson told reporters in Beijing.


• The US Treasury said it plans to sell $22 billion in longer-term debt at quarterly auctions next week. The Treasury will auction $13 billion of 10-year notes on August 8 and $9 billion of 29 3/4-year bonds August 9, the department said.

Europe

• European manufacturing industries grew at the slowest pace in 17 months in July on the euro’s rise and higher oil prices. Royal Bank of Scotland Group Plc’s manufacturing index fell to 54.9 in July from 55.6 in June, compared to the expected 54.8. A reading above 50 indicates expansion.


• Germany’s manufacturing PMI slipped to 56.8 in July from 57.3 in June. The French PMI declined to a 6- month low of 53.3 from 53.8. The Italian PMI fell to 53.3 from 54.

Asia-Pacific

• Asian and European stocks declined, extending global equities sell-offs, after Macquarie Bank Ltd. and Bear Stearns Cos. said funds may post losses as the US subprime mortgage trouble spreads.

FX Strategy Update