EUROZONE

EUROZONE

GVI European Central Bank Policy Meeting Preview Decision: July 3, 2008 at 12:45 GMT. ECB Refi rate: 4.00% Expected Decision: High risk of +25bp rate hike. ECB President Trichet signaled a likely rate hike in July after the June ECB governing council meeting. The uncertainty he expressed about what the decision would be suggested that the central bank was waiting for upcoming data. Either decision is still covered. Key Eurozone PMI figures, which correlate well with GDP, are pointing to a developing economic slowdown. ECB Policy Objective: The primary objective of the ECB's monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term. The chart above shows year/year HICP (Harmonized CPI) for the Eurozone relatrive to its "below 2%" target level.

The chart above shows the current three month libor rate, the current ECB "refi" rate target and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago. The chart provides a view on where the markets feel Eurozone interest rates are headed.

The chart above shows the ECB refi rate target, three month libor, and two- and ten-year bond yields over the past twelve months.

The Japanese economy is in a mixed state with inflation finally starting to show up in key price indices. Tokyo would not be unhappy with a weakening JPY.