ECB consider yield caps as an answer to Eurozone funding issues as markets anticipate upward revision to UK GDP on Friday

Tom Tong21/Aug/2012Currency Updates

GBP

Yesterday, sellers were in control of GBP/USD for most of the day, but before the New York session came to a close, buyers were able to stage a rally that took the pair back to its opening price. By the end of the day, Cable closed slightly higher. The release of the Rightmove house price index might have had a hand in the pound’s slow start as it showed a 2.4% decline in house prices, which is even worse than the 1.7% slide that we saw last month.This was the biggest drop ever recorded by the Rightmove index.

Today, there are no top tier events for the Sterling, although Public Sector Net Borrowing report for July are released, and forecasts say we will likely see net borrowing slip from 12.1 billion Pounds to -2.7 billion Pounds. And at 10:00 am CBI industrial order expectations data will be available.

EUR

Yesterday, even though the markets were unusually inactive, the Euro still couldn’t muster the strength to end the day in the green. It slipped against the dollar and was retreating against the Yen.

What made headlines up in Europe were reports that the ECB may be considering the use of yield caps on certain government bonds in the euro zone. Basically, with the use of yield caps, the central bank will be telling the markets that it won’t allow bond yields to rise past a certain point.

If the ECB can somehow push through with yield caps, it could finally put a halt to the region’s rising borrowing costs.

Later today Spain is selling 12 and 18 months bonds.

USD

There was a quiet start to the week for the dollar yesterday, as it edged downwards without any obvious pressure on it, to further enforce this point the average daily range of the dollar index was just hovering over multi year low.

The only figure released yesterday for the green back was the Chicago Fed Activity index, which aims to identify potential inflation, even though the figure was worse than previous, it came in slightly better than forecast, either way it failed to stir up the dollar market significantly.

Looking at today there is nothing to suggest much change; we will not see any medium or high tier data released for the green back until the end of the week.

Print

Written by Tom Tong

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