Euro stabilizes; markets await MPC data
20/Apr/2011 • Currency Updates•
Sterling lost ground against a firmer euro during Tuesday trading and continued to trade in a wide 200 point range against the US dollar as traders adjusted their positions ahead of the Easter break. Sterling had risen 1% against the euro on Monday following on from speculation that Greece will need to restructure its debt in the near term. However, the euro did bounce slightly, ending up 0.3% . Tuesday was extremely light for economic data out of the UK. However. this morning the markets attention will focus on the Bank of England’s April policy meeting minutes released at 09:30. The markets are now looking at potential interest rate hikes from the BoE in October, and with no anticipated shift in the Monetary Policy Committee members voting it remains to be seen whether those voting for unchanged rates are becoming more anxious about future inflation and the growth outlook for the UK.
Solid Eurozone economic data helped the euro rebound against the pound and dollar on Tuesday after Monday brought about its worst day in five months. The Eurozone composite PMI, a measure of the private sector combining services and manufacturing, nudged up to 57.8 from March’s 57.6, beating forecasts for a fall to 57.1 and showing business activity in Germany and France continued to outpace the rest of the 17-member common currency bloc. The euro has been buoyed of late by expectation the ECB will continue to tackle inflation by raising interest rates, however, with concern resurfacing over the debt troubles of peripheral economies the euro has found itself under broader selling pressure. A German government adviser said on Tuesday that a restructuring of Greek debt was inevitable, raising pressure on Athens to seek a solution to the debt woes that are shaking investor confidence in the Eurozone. Analysts said the possibility that a country which has received a bailout may still have to restructure its debt will likely encourage more investors to exit long euro positions.
The US dollar fell against the pound and euro during Tuesday trading but rose against the Japanese yen, signalling improved risk appetite as worries brought to surface by Standard & Poor’s downgrade of outlook on US credit ratings eased. On a relatively light day for economic news out of the US we can focus on the Existing Home Sales data due out at 15:00. We are anticipating a positive reading for housing market conditions which in turn could see the dollar strengthen.