Markets await BOE and ECB meetings as majors tread water

Tom Tong04/Jul/2012Currency Updates

GBP

Tuesday saw a steady day of trading for sterling versus the euro as the UK managed to shrug off the weak construction data which showed activity in Britain fell at its fastest pace in two-and-a-half years. It seems that the majority of investors are now awaiting the outcome from the Bank of England and European Central Bank policy meetings this week for cues. With further stimulus predicted to come from the UK through increased asset purchasing, it is expected that the pound could witness some strengthening especially against the common currency as many in the market see any BoE decision to shore up the economy as pre-emptive.

Against the the Greenback the pound also managed to hold strong following less than impressive economic figures that were released from the US. On Tuesday the Institute of Supply Management Index (ISM) showed that demand for American exports and production levels was at a three year low which in turn had an negative effect on the dollar against a a basket of currencies, including sterling.

EUR

The euro managed to rally on Tuesday against the U.S. dollar as investors were positioning for the European Central Bank policy on Thursday with the US markets being closed Wednesday for the national holiday. The single currency has been seeing some stability after the European summit held last week eased some of the worst fears for Spain and other core countries as officials agreed to use existing European Financial Stability Facility (EFSF) and eventually the European Stability Mechanism (ESM) to bolster at-risk government bond markets.

Analysts said sterling will move in a range of 79.5-81 pence against the euro before interest rate decisions at the meetings held by the European Central Bank later in the week. As expected, there is still a wide range of views held by investors on what the ECB will do at the rate decision on Thursday, but we should see the central bank implement a range of tools throughout the second-half of the year as growth and inflation falter.

USD

There was little activity coming from the US yesterday exacerbating price moves ahead of the national fourth of July holiday on Wednesday. The Greenback did lost some ground against the euro yesterday as many investors believe that the success of the EU summit last week being followed by the ECB meeting on Thursday will help the eurozone escape many of it previous economic woes.

The small piece of data from the US on Tuesday had a negative effect on the currency as the Institute of Supply Management Index (ISM) fell from 53.5 down to 49.7 in June making the figures far worse than predicted. Any figure below 50 marks contraction. The bad news suggests that the world’s top economy is struggling to keep its economic recovery going raising concerns from investors worldwide.

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Written by Tom Tong

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