Sterling hovers near four-month high against the dollar as euro's fate rests with divided politicians

Tom Tong11/Sep/2012Currency Updates

USD

Last week’s weaker than expected employment data increased speculation that the Central Bank will introduce a 3rd round of quantitative easing at the FOMC meeting starting tomorrow.

US Consumer Credit shrank in July, which surprised analysts as it was the first fall for nearly a year; this adds further weight to the argument for QE3.

At lunchtime today the trade balance figures for The States are out, with most expecting a drop to -44 bn USD.

A second piece of medium tier data is out at 5pm with the release of the 3 year note auction figure.

GBP

Sterling slipped from a four-month high against the dollar on Monday, although expected QE3 in the States against more steady policy in UK offers solid support for the pound. Also, a spike in risk appetite since the ECB announced aggressive bond buying to support peripheral nations’ borrowing has offered de facto support for the pound.

The goods trade balance figures are out at 8.30am, with the consensus believing the the figure will move to -8.9 bn.

EUR

The eurozone waits with baited breath as the course of its recovery is left in the hands of divided politicians, and amid the challenge in the German courts as to the legality of European Stability Mechanism.

Chancellor Merkel appears to be softening on the bond buying plan, therefore increasing the likelihood of it going ahead sooner rather than later.

However, the euro remains close to its 4-month high due to renewed confidence that the ECB plan will help stem the debt crisis.

In other news, according to figures released yesterday, the French economy shrank in the 3rd quarter and will lose 0.1% of GDP in the three months up to September. Meanwhile, Italy’s economic decline is happening at a faster pace than expected with GDP collapsed by 0.8% in the 2nd quarter.

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Written by Tom Tong

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