Markets trade a tight range as they await further news on Greece, eyes on BOE meeting in the UK

Tom Tong21/Nov/2012Currency Updates

GBP

No major movements for sterling yesterday as traders patiently waited for a decision on the Greek bailout and there were no reports released from the UK to inspire traders.

This morning we saw the pound opening up strong against the euro following the stalling meeting regarding Greece. Before lunch the Bank of England minutes are set to be released where some interesting issues will be highlighted.

The market is mainly interested if the BoE will continue to ease the economy with monetary intervention, but on the other hand there is the increased worry of raising inflation that might threaten the banks QE strategy.

Furthermore, today the markets are expecting a release of information on British public finances and Public Sector net borrowing.

EUR

There was a number of potentially market moving reports from the eurozone yesterday, but as for most other currencies, the common currency failed to move significantly yesterday as markets seemed stunned awaiting the decision on Greece. With the decision postponed after 12 hours of negotiation yesterday, there is nothing to do but to wait unfortunately.

The disagreement seems to lie between almost all parties involved; the ministers, the IMF and other bailout creditors.

German Producer prices (PPI) came out slightly worse than expected which put a downward pressure on the common currency, the difference is not significant enough to be feared but with Germany as one of Europe’s key drivers, it’s not ideal given the uncertainty lying ahead.

Today German 10-year bond auctions will be held and if Germany end up paying higher yields on their bonds we can expect a bearish effect on the EUR, especially in combination with the poor data released yesterday.

USD

The dollar traded relatively quietly yesterday with no clear sense of direction, and the Greenback’s behaviour again proved difficult to anticipate as the not-so-positive speech from the Fed’s chairman Bernanke did not shake up the dollar to bad last night.

Bernanke said that the US wants to see the labour markets improve in order to establish a solid foundation for the economy’s recovery before raising interest rates in the US.

The most important point raised last night must have been that the Fed is willing to ease its monetary policy further in order to stimulate the economy, an action which normally has bearish effects on the dollar.

This suggest that the Greenback is fairly supported by risk aversion at the moment, potentially following the rising tensions on the Westbank and in southern Europe.

US housing starts came out with an upside surprise at 894K yesterday, beating a forecast decline. On the other hand, building permits are still declining.

Today we expect a mixed set of medium data to be released; initial jobless claims are forecast to come out better than previous at 410K. Furthermore, there are a number of indicators, including the USD leading indicators, Michigan Confidence, and mortgage applications.

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Written by Tom Tong

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