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Euro stumbles as ECB capitulates to crisis

Sterling hit a two month high against the euro yesterday as the single currency came under broad selling pres-sure after the European Central Bank resumed bond buying. The ECB also offered a new round of funding to commercial banks but it failed to calm market worries about the euro zone’s spreading debt crisis as Italian and Spanish bond yields rose. The pound showed little reaction after the Bank of England left interest rates on hold as widely expected and stuck with a pause in its asset purchase programme, its movements largely determined by events elsewhere. Sterling is currently trading at 1.1520, having hit 1.1553 overnight, its strongest level since late May. It wasn’t all positive for sterling as it fell against the dollar as Bank of Japan intervention to curb a stronger yen pushed the dollar higher across the board. The pound is currently trading at 1.6260 against the greenback. Data 9.30: PPI Input m/m.


European Central Bank President Jean-Claude Trichet may be forced to step up his fight against the sovereign debt crisis after a resumption of bond purchases yesterday failed to halt a rout in Italy and Spain. Over  opposi¬tion from Germany’s Bundesbank, Trichet yesterday sent the ECB back into bond markets as yields on Italian and Spanish yields soared, threatening the ability of the euro regions third and fourth largest economies to bor¬row. As the sell-off continued, traders said the ECB purchased only Irish and Portuguese securities, who’s coun¬tries have already been ‘rescued’, suggesting the central bank is reluctant to put up the funds needed to tame a crisis it says governments are responsible for fixing. Professor Willem Buiter, Citigroup’s chief economist, said the apparent ECB action was pointless. ’The warped logic of intervening in two countries that don't need it is as strange as it gets.’  Data 11.00: German Industrial Production m/m.


The dollar headed for weekly gains against most of its major peers as investors flocked to the world’s reserve currency before US and German data that may add to signs that the global economy is slowing. The dollar traded at 1.4120 per euro this morning, headed for a 2 percent weekly gain, the biggest since the five days ended June 10. All eyes shift to this afternoon’s Non-Farm unemployment numbers, which could act as another catalyst to stoke panic. Consensus estimates call for a print of 85k jobs, a dramatic improvement from the dis¬mal 18k print last month. Although the employment rate is expected to hold at 9.2 percent, private payrolls are seen rising by 126k in July with manufacturing payrolls expected to add a mere 13k jobs.
Data 13.30: Non-Farm Employment change; Employment Rate.


• Australia’s Central Bank has revised its forecast for economic growth for 2011 sharply lower, but said it continues to expect a full-blooded recovery in 2012, while inflation is set to remain a nagging problem for some years.


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GBP/USD                        1.6270

GBP/EUR                        1.1500

EUR/USD                        1.4150

GBP/JPY                         127.85

GBP/AUD                        1.5530

GBP/NZD                         1.9460

GBP/ZAR                         11.29

GBP/CHF                         1.2510

GBP/CAD                        1.5930

GBP/SGD                        1.9860

GBP/THB                         48.60

GBP/HKD                        12.70

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These rates are for indication purposes only


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John Paul Georgiou

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