Dovish BOE minutes as budget has neutral market impact

Tom Tong22/Mar/2012Currency Updates

GBP

Sterling eased from two week highs against the dollar on Wednesday after dovish minutes from the Bank of England’s last policy meeting (two members urged raising the asset purchase target to £350 billion), while Chancellor George Osborne’s 2012 Budget was perceived as largely neutral to the markets.

More bad news continued as borrowing by Britain’s public sector, excluding financial interventions, jumped to £15.2 billion in February from £8.9 billion in the same month last year, the U.K. Office for National Statistics reported.

In-spite of the bleak news above not all was bad in the UK with inflation continuing to fall in February, thanks largely to lower gas and electricity bills. Consumer Prices Index (CPI) inflation fell to 3.4% in February, down from 3.6% in January.

EUR

The Greek credit default swap auction passed off without a hitch and the bailout appeared to progress with Greek parliamentary approval.

Commodity Futures Trading Commission data showed euro short positions reversing, suggesting investors were growing tired of betting against the single currency, however large short positions are still being held.

In-spite of this, the euro slid sharply against both the dollar and yen on Wednesday, falling from a near five-month high against the yen, in technical trading.

Investors will now look to manufacturing data in Europe being released today hoping for stability in several economies, as they remain wary of the risk of another flare-up in the euro-zone debt crisis, with the Italian government looking set to clash with unions over employment law reforms.

USD

News out of the US was positive yesterday with Federal Reserve Chairman Ben Bernanke testifying that U.S. banks could handle a worsening European debt crisis. Traders also bought dollars as borrowing rates in Spain crept higher, a sign that investors are worried that the country may have trouble paying its debt. Bernanke said the U.S. banking system remains exposed to Europe, but “stress tests” conducted by the Fed found that U.S. banks could handle a worsening debt crisis.

However The U.S. dollar surrendered gains against the yen after data showed U.S. home resale’s unexpectedly fell 0.9 percent to an annualized rate of 4.59 million units in February, while expectations were for an increase.

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Written by Tom Tong

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