Central banks prepare to provide liquidity as all eyes now fixed on Greek elections

Tom Tong15/Jun/2012Currency Updates

GBP

Sterling eased against the euro on Thursday as investors cut bearish bets against the common currency and booked profits, but it advanced against the dollar after weak U.S. data bolstered expectations of more stimulus by the Federal Reserve. Sterling further rose against the dollar on Thursday after the British government and the Bank of England said it will act together with new monetary tools to address tightening credit conditions in the country.

The Olympic Games, coming to London next month, have generated a boom for the city’s hotels and transformed some of the grubbier parts of London where the big events will be hosted.

The Games may also have acted as a crutch for the ailing pound. Currencies have a long record of pushing higher in the run-up to global sporting events, as the preceding splurge in infrastructure spending acts as an economic support.

EUR

The euro inched up against the dollar and some other major currencies in Asia on Friday after a report that central banks were preparing coordinated efforts to provide liquidity, if necessary, after the Greek elections. Draghi is due to speak at the ECB and its Watchers XIV Conference.

Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.

Monetary policy makers from the U.K. to Japan and Canada sounded the alert about potential fallout from the single currency bloc’s troubles. They spoke as Group of 20 leaders prepare to meet in Mexico next week amid the weakest international economy since the 2009 recession.

USD

Wednesday and Thursday saw a raft of below par data released in the US, causing the currency to slip slightly against euro and sterling. This was tempered by the fact that the euro is still seen as a risky bet by investors. More Americans applied for jobless benefits and consumer prices dropped by the most in three years, giving the Federal Reserve room to spur an economy that’s generating little growth or inflation. Although Unemployment Data was bad, the greenback still maintains its position as the global reserve currency, and the negative data could be used to fuel risk appetite amongst investors seeking gains.

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Written by Tom Tong

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