Thursday, 13 January 2011

Euro gathers strength following bond auction

13th January 2011
Good morning. Yesterday was a mixed day. Sterling fared quite well initially against most currencies, but the Trace deficit was wider than expected, pushing the pound back down. Against the Euro the Portuguese bond auction went better than expected, and so the Euro is now getting stronger. We'll look at this after the usual snapshot of rates as at 08:30am:

  • GBP/EUR 1.1985
  • GBP/USD 1.5740
  • GBP/AUD 1.5821
  • GBP/NZD 2.0584
  • GBP/CAD 1.5531
  • GBP/JPY 130.72
  • GBP/DKK 8.9276
  • GBP/NOK 9.2919
  • GBP/ZAR 10.762
  • EUR/USD 1.3126

Pound falls vs US Dollar & Euro

Sterling slipped back from a 1 month high against the US dollar yesterday after data showed the UK trade deficit widening more than expected in November. This weakened the pound and pushed rates down.

Against the Euro, Sterling also fell slightly. This was in part due to the Trade Balance figures, but mostly due to a stronger Euro.

Bond Auctions

Yesterday Portugal held it's bond auction, and analysts thought they would find difficulty in raising the capital required. The euro zone's financing troubles have generally dragged on investors' appetite for risk taking, though signs that highly indebted European countries are able to tap capital markets albeit at high borrowing costs, may put risk seeking back in play.

The auction was successful and Portugal had no problem raising the finance necessary. This put a spring back in the step of the Euro, and as a result rates have started to fall after rising all week.

So, the strong bond auction in Portugal has calmed the markets and with no major negative factors in sight, this could mean rates may now trend downwards. Today Spain will hold it's auction, followed by Italy; the 2 countries analysts think may also be in difficulty.

If today's auction also goes well, expect GBP/EUR rates to fall further as the Euro strengthens.

However, some analysts have said that the bounce in sentiment towards the Euro will prove temporary and whilst it may continue over the short-term with attendant upside risks for the euro, it is unlikely to last for long unless concrete measures are unveiled by the authorities in Europe.

For now, Portugal's successful fund raising in the bond market along with encouraging euro zone industrial production data, helped put a spring in the step of the common currency.

Today's Data

We have interest rate decisions for the UK and EU. We expect both zones to leave rates on hold at record lows, however any comments made after the decision could affect market sentiment and cause GBP/EUR volatility. We also have Industrial and manufacturing production figures for the UK along with a GDP estimate. US Jobless Claims rounds off the day.

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