Having waited with bated breath for a tragic Portuguese bond auction and the next jolt in the euro’s demise, the market was bitterly disappointed.
Having stayed within a sixty pip range yesterday, the possibility of the single currency freefalling was all but snubbed out. A strong auction for Portuguese bonds quelled immediate concerns about the country’s debt problems and forced GBP/EUR to trade within an even smaller range this morning. The 17-nation currency barely moved after Lisbon sold €1.29billion in debt, including ten year bonds which were sold at a lower average cost than the previous sale.
Although the euro may have survived this round, it will remain under heavy selling pressure and remain near its four month low against the pound. Bond auctions from both Spain and Italy tomorrow will be heavily scrutinised, while Portugal is still expected to seek a bailout for its mounting debt.
Positive speculation (that interest rates will rise sooner than thought to fight inflation) ahead of tomorrow’s interest rate decision from the BoE has sent the US dollar temporarily downwards against GBP. Also, a lack of any news out of the US has not helped with the greenbacks lack of support this week. However, with trade balance and PPI data out tomorrow, we could see a resurgence, especially against the euro.
If you do have any currency related questions, or an opinion on the next interest rate decision, please feel free to comment below.
Tom Hampton
Analyst – Caxton FX
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