Crunch time for the Euro as markets focus on today's upcoming EU summit
08/Dec/2011 • Currency Updates•
Sterling saw plenty of upwards momentum against the Euro and Dollar yesterday as it benefitted from nervy investors moving out of the single currency ahead of today’s crunch meeting in Brussels. Mayor of London Boris Johnson has warned Eurozone leaders are “in danger of saving the cancer and not the patient” in their quest to rescue the single currency. He broke ranks with the party line and more importantly the stance of the party leader, David Cameron, in calling for referendum on any changes to European conventions following this week’s crunch meetings. This potential political revolt could spell turbulence for the pound as political uncertainty undermines the potential impact and longevity of Osborne’s austerity plans. Elsewhere, figures released yesterday showed factory output in the UK fell in October and hungry UK banks continued to gobble up the fresh pool of cheap dollars from 6 US central banks.
EUR/USD climbed the charts, until hitting a minor resistance level. On hitting the psychological level, Euro retracted 100 pips against Euro. The Euro was able to pare some of its losses and ended day with a 3-pip win against the Dollar. The Euro’s rapid decline was due to investors getting jittery when the ECB announced that the demand for dollars by European banks through its swap auction was more than what was anticipated. Analysts were expecting that banks would only take up around 20-40 billion USD during the three-month operation. However, it turns out that European banks got 50 billion USD, highlighting the region’s funding difficulties.
The concern may further be reflected in the ECB’s interest rate decision at 12.45pm GMT. We are not expecting to see the rates cut, but we are bracing for ECB president Mario Draghi to discuss easy monetary policy tools that would help stimulate bank lending and promote growth.
The USD had a quiet day yesterday as the markets await the much anticipated EU summit meeting. There is some speculation that particular disagreements have emerged regarding the EFSF and the ESM. A lack of resolution or lack of a firm plan should see the USD creep higher.
US jobless claims are expected to be published around the expected 400,000 mark at 1.30pm GMT causing little impact on the market. The interest rate decision is also due today, in the event interest rates are cut then we should see some volatility in the markets and a busy New York trading session.