Papandreou wins confidence vote

• Papandreou wins confidence vote• Markets remain relatively calm after vote• All eyes on Bank of England Meeting minutes• Dollar remains vulnerable ahead of Fed rate decision

Pound:
Last week witnessed the re-emergence of risk sentiment as the key driver of the British Pound in the absence of
anything meaningful on the domestic front. This might not prove lasting however as the spotlight turns to today’s
Bank of England minutes. The markets will pay particular attention to the voting pattern considering the hawk’s
top champion-Andrew Sentance– has now been replaced by Ben Broadbent-a former Goldman Sachs economist.
Broadbent has already made it clear that he agrees with the BOE policies so far, therefore implying that he
will be happy for the time been at least to leave rates where they are and so cutting the hawks vote down to two.
This should therefore reinforce the view that the BOE will remain firmly dovish for the time being and on the
back of this we could see sterling on the defensive against most of its leading counterparts.
DATA: 9.30am MPC Meeting Minutes

Euro:
Well Christmas certainly came early yesterday for a certain George Papandreou as he managed to win his vote
of confidence in the Greek parliament with 155 lawmakers voting in his favour while 143 voted against in the
300 seat parliament. In his closing speech before the vote Papandreou said that if “ we give up in the middle of
the road then history will judge us harshly “. Whilst this is one hurdle cleared it is only one small step on the long
road to recovery. Attention now turns to June 28th when the premier will attempt to push through parliamentary
approval of a 78 billion euro package of budget cuts to stave off the threat of default. Until this is approved European
finance ministers have said that they would hold off on approving a 12 billion euro payment to the country
promised for July. It could certainly be a shaky few days leading into the 28th.
DATA: No major data is due today

Dollar:
The greenback is on the defensive as traders unwind dollar positions ahead of today’s much anticipated FOMC
rate decision. While the central bank is certain to leave rates unchanged traders will be lending a keen ear to
remarks made by Chairman Bernanke at the subsequent press conference where investors will be waiting to
hear more details about the Fed’s exit strategy. With the end of QE2 in sight the chairman's words will be more
heavily weighted than ever. As such, the dollar could slide further as interest rate expectations continue to slide
with Credit Suisse overnight swaps factoring in only 13 basis points in hikes over the next twelve months, the
lowest level swaps have been since December 2010.
DATA: 5.30pm FOMC Statement and Federal Funds Rate

General:
The Australian dollar weakened against the majority of its main counterparts on prospects that Greece will
struggle to pass austerity measures to avoid a default, damping demand for growth-sensitive currencies.

 

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