Euro hovers as markets await bailout conditions

Tom Tong18/Nov/2010Currency Updates

GBP

The pound slowly rallied during Wednesday trading, following on from news of an unexpected fall in UK jobless benefit claims and Bank of England minutes which suggested the central bank remains some way from implementing more quantitative easing.

Data showed the number of Britons claiming unemployment benefit fell by 3,700 in October, the first fall since July and confounding expectations of a rise of 5,000.

Additionally, minutes from Novembers Bank of England Monetary Policy Committee meeting showed one member wanting more stimulus, another voting for a rate hike and the remaining seven keeping policy on hold and ready to act in either direction.

EUR

The euro traded near seven-week lows versus the dollar on Wednesday, following on from the lack of a clear solution to Ireland’s debt crisis. Eurozone finance ministers have agreed to lay the groundwork for bailing out Ireland’s banking sector with the IMF, but Dublin has yet to decide whether to request the aid.

Appetite for riskier assets waned as the nervousness grew after European clearing house LCH. Clearnet doubled its margin requirement on Irish government bonds to 30 percent of net positions, citing higher Irish yields over German benchmarks.

Risks that debt problems could cause contagion and spread to Portugal and other weak economies underpinned perceived safe havens such as the US dollar and also benefited the pound.

USD

The dollar fell versus 13 of its 16 most traded counterparts as weaker-than-forecast US economic data reinforced speculation the Federal Reserve will follow through on its plan to buy $600 billion in government debt, devaluing the currency.

Data showed muted inflation for October which is a concern and looks set to justify the Fed’s actions to stimulate the economy. The 12-month rise in the underlying consumer price index was at a record low 0.6 percent last month, the government said earlier in the day.

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Written by Tom Tong

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