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So Central Bank Thursday passed without a hitch, hiccup or surprise with both the BOE and ECB deciding to hold rates at current levels. Trichet post decision press conference was effusive and bullish and led to some euro strength in the afternoon session. the governor’s assertion that growth levels in Europe were looking better than had been expected at previous meetings comes in direct contrast to the gloom coming from Ben Bernanke’s Federal Reserve.

Sterling fell slightly after the MPC’s vote to hold rates at 0.5% and not extend QE from the £200bn level. As i laid out in the webinar yesterday i expect sterling to have a tough august and believe this will be mainly due to the Inflation Report on Wednesday. Mervyn King was fairly downbeat on the near term prospects for the UK economy when he met with the Treasury select committee last week and we expect a similar tone to the report. Sterling is overbought against the USD at the moment in the short term and we also expect that to weigh on GBP sentiment.

Ahead of Non-Farm payrolls the market is fairly quiet this morning. Wednesday’s ADP data was better than expected and prompted some dollar strength but this was unwound by yesterday’s Initial Jobless figures which slipped to 479k vs 455k expected. NFP is due at 13.30 and will likely see some dollar weakness; the market is looking for -65k and we are predicting -75k.

The other main news in FX markets is that of Russia’s ban on the export of wheat. Through the combination of a drought and wild forest fires this year’s harvest will likely fall by around 25% which has seen wheat prices rise some 80% in the past few months. The currency that we most expect to gain as a result of this is the CAD given its strong arable base making up around 15% of exports.

Apart from the NFP figure we have UK industrial and manufacturing production which are both expected to fall in line with  slackening in manufacturing PMI seen on Monday.

Have a great weekend