Euro advances on dollar as markets eye EU emergency summit

Tom Tong21/Jul/2011Currency Updates

GBP

In the build-up to the Bank of England minutes on Wednesday morning GBP looked weak as concerns over possible quantitate easing, weak economic data and potential GBP risk from a Eurozone crisis outweighed stubborn UK inflation. However, sterling rallied after the minutes, with the markets disappointed they were not more dovish. The text suggests that BoE policymakers remained split on the decision to maintain interest rates as well as the size of asset purchases. Additionally, they do not see the need for an interest rate hike in the near term, as they judged that the on-going economic weakness could last longer than previously thought. It now looks like unlikely that a shift in policy will take place till into 2012.

Elsewhere on Thursday morning, confidence among British consumers diminished in June as households remained gloomy regarding the prospects of the economy, the Nationwide Building Society said on Thursday.

Nationwide’s consumer confidence index fell to 51 in June from 55 in the previous month. In May, the confidence index jumped 11 points when the feel-good factor of the Royal wedding and warm weather boosted sentiment.

USD

The dollar remained on the defensive versus other major currencies on Wednesday, approaching a three-year low against the surging Canadian dollar.

The dollar was mostly weaker on Wednesday, as lacklustre housing figures diminished hopes that US economic recovery picked up in the early part of the summer. After other recent data raised hopes the housing market has started to heal, industry figures from the National Association of Realtors showed that existing home sales fell in June after a more sizable decline in May.

The USD also continues to be weighed down from a threat of a future AAA rating downgrade warning from Moody’s.

EUR

European officials are arriving in Brussels for Thursday’s emergency summit, the aim of which will be to hammer out a coherent plan to relieve Greece’s debt crisis.  The euro rose against the dollar on Wednesday on hopes Eurozone leaders would reach a deal to ease Greece’s debt burden, though concerns over contagion to other European economies should keep the bloc’s currency vulnerable. Greece’s Prime Minister George Papandreou said it ‘could be a make-or-break moment for where Europe is going.’

Elsewhere

Asian stocks and the Australian dollar fell after a China manufacturing gauge reflected contraction for the first time in a year. In a potentially dangerous combination for investors, the flash Chinese PMI reading for July also reflected a jump in inflation, helping to push S&P 500 equity futures into negative territory and knock mainland Chinese stocks further below a two-month high hit on Monday.

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Written by Tom Tong

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