US Dollar

The US dollar traded significantly lower on the dovish Fed's Beige Book, but despite this there is still mixed feeling in the market as the report showed production activity appeared to be expanding at solid pace and labor markets in general were tight.

We still believe that this report is just what Bernanke was looking for to confirm his own dovish view on rates.

The report showed many local areas actually with slowing growth and we believe in his mind this will only get worse as we head into the fall and will then in return keep a damping factor on inflation.

Also not to forget Bernanke main focus is to fight a slowing economy and not inflation.
We still believe that whether we see a 25 bps point hike on August 8th we still believe that the following statement by the Fed chairman will leave the market with a strong sense of them putting rates on hault for now which should send EURUSD well above 1.3000 on a 3-month horizon.