Euro reverses some of its recent gains, as all eyes today on Jackon Hole

Tom Tong31/Aug/2012Currency Updates

GBP

Sterling was steady against the dollar on Thursday, with trade expected to be muted due to investor caution ahead of a speech by Federal Reserve Chairman Ben Bernanke later in the week.

Any hint that policymakers are close to signalling another round of monetary easing to boost growth could weigh on the dollar, although many market players were reluctant to bet on such an outcome following a recent uptick in U.S. data. Moves in the euro versus sterling were also subdued.

Demand for the euro has been lifted in recent weeks by speculation the European Central Bank will announce plans to tackle the eurozone debt crisis at its next policy meeting on Sept. 6. Many analysts believe GBP/USD is being driven by what is going to happen with the dollar and Bernanke today.

Whilst moves in sterling were expected to be limited in the run up to Bernanke’s speech at Jackson Hole, Wyoming, today, investors were also focused on UK mortgage lending and money supply data, due this morning.

Lloyds analysts said the data could be used as a gauge of whether the Bank of England’s quantitative easing programme and other initiatives aimed at increasing bank lending to the wider economy were having an effect.

USD

The dollar rose against the euro on Thursday as concerns over the eurozone resurfaced amid speculation of what action the European Central Bank will take following its meeting next week. However, the dollar did slip in Asian trading hours Friday after new US data gave a cautious view of the world’s largest economy. Caution also lingers as markets anticipate action ahead of a key speech from Federal Reserve Chairman Ben Bernanke due later in the trading day. Investors are on tenterhooks as we wait to see whether Bernanke pushes forward QE3, which they have already priced in.

The ICE dollar index, which measures the greenback against a basket of six other currencies, climbed from 81.551 the previous evening to 81.704 last night.

EUR

The euro yesterday lost some of the ground it has made over the dollar in the last few days following weaker eurozone confidence data, after it had initially made some gains following a successful Italian 10-year bond auction.

Sentiment turned bearish following reported comments from Robert Fico, Slovakian prime minister, warning that the chances of a euro break-up were still 50:50, while the Spanish region of Valencia requested further government aid, helping the euro to fall 0.2 per cent. The next moves for the euro will today be dependant on rhetoric from Fed Chairman Ben Bernanke, when he makes his speech at Jackson Hole.

Further, the European Commission, the executive arm of the European Union, plans to give the European Central Bank oversight of all banks in the eurozone, reported by a German newspaper this morning. The European Central Bank would be given sweeping authority over all 6,000 eurozone banks under the plan being drawn up by the European Commission, putting Brussels on a collision course with Germany and the ECB itself, which have urged a more decentralised first step towards “banking union”.

As investors relieve their record short positions on the euro which we have seen the past few months, to long positions, all eyes will now be fixed on Ben Bernanke today and any further hints he provides at QE3, ahead of next week’s crucial ECB meeting.

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Written by Tom Tong

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