Euro markets ease slightly after suggestion of possible ECB intervention

Tom Tong12/Apr/2012Currency Updates

GBP

The pound has strengthened against the Dollar after an industry report showed retail sales increased in March, boosting the appeal of U.K. assets. The British Retail Consortium (BRC) did however say that it needed to establish whether this was additional spending or just shopping that happened earlier than usual as consumers are still struggling with rising fuel and utility bills.

This was echoed on as Sterling advanced for the first time in six days against Yen as European stocks and Spanish bonds rallied; easing concerns the region’s debt crisis is worsening. Gilts fell as the retail-sales data added to signs the U.K. economy is improving, damping demand for the safety of government debt. The U.K. sold 4.5 billion pounds ($7.2 billion) of five-year notes.

EUR

European markets also moved higher on Wednesday, making a slight recovery from Tuesday’s steep losses.

ECB executive board member Benoit Coeure did suggest possible market intervention which helped ease tension over Spain’s debt yesterday and pushed down the countries implied cost of borrowing. Concerns still remain for Spain as its borrowing costs are close to unsustainable levels, with 10-year bond yields sitting around 5.9%. Italy’s borrowing cost is worryingly not far behind Spain at 5.6%.

The Federal Reserve said in its Beige Book business survey yesterday revealed that the economy continues to expand at a moderate pace from mid-February through to late March in all 12 of its regions as manufacturing, hiring and retail sales showed signs of strength in the face of higher fuel prices.

German bond yields touch record lows with figure dropping close to 1.63% for benchmark 10-year paper. German growth is said to create domestic demand which could rival the export industry as the economy’s driver. This demand may help neighbouring European countries for trade but will make it increasing difficulty for the ECB to set a common monetary policy.

USD

The U.S. Dollar and Japanese Yen are down, with financial markets having staged a partial recovery on Wednesday after the depressing mood since the start of the week.

US shares were higher in early trading on Wednesday following a losing run of five sessions.

This could be a result of the mentioned manufacturers gains in automotive and high- technology industries, with reports saying firms are optimistic about growth prospects however there is still somewhat of concern about the rising petrol prices.

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Written by Tom Tong

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