Euro takes breather and rallies after successful bond auction in Portugal

US Dollar:

Yesterday saw global equity markets continued their positive start to 2011 and extended gains across the board. Risk appetite has remained in the markets which continued into Asian trading overnight. As highlighted before, a gain in risk appetite usually leads to a weakening of the greenback, and this was played out in the last 24 hours. The dollar gave up nearly two cents against the pound to hit $1.5780. There was even a decline in the value of the dollar against a resurgent euro as EUR/USD moved one and a half cents against the buck to trade at $1.3140. The dollar’s demise against the single currency was exacerbated by the successful bond auction in Portugal which led to euro strength. Yesterday evening saw the release of the Fed’s beige book which showed the US economy continued to expand moderately at the end of last year. Its showed that the re¬covery in the economy, although not rapid, was on track. The beige book, a compilation of anecdotal reports from businesses across the country, offered further confirmation of trends that have emerged from a range of economic data in recent weeks were gradually improving. This helped the continuing gain in risk appetite, help¬ing to weaken the mighty buck.

Data 13.30: PPI m/m 0.8% unchanged, Trade Balance –40.8B from –38.7B, Unemployment Claims 405k from 409k and Core PPI m/m 0.2% from 0.3%.

Pound

Today's stand out currency cross from a sterling sellers point of view will surly be cable, as the pound rallies against a weakening dollar. GBP/USD has seen a gain of nearly two cents as the continued rally in equity markets has seen the dollar sold off. The FTSE has managed to stay above the 6,000 level and the Dow Jones gained three quarters of a cent in yesterday's session. This all helped to push the dollar lower to the benefit of sterling. Against the Aussie dollar we have continued to see the pound rise, taking advantage in a global sell off for the Aussie currency which has come on the back of the Queensland floods. The pound’s position against the euro has seen a reversal over the last 24 hours, halting sterling's rally as the Portuguese bond auction was suc¬cessful yesterday. This led to a small gain for the euro, although today see’s a Spanish bond auction which will see GBP/EUR trade sideways until the outcome is known.

Data

09.30: Manufacturing Production m/m 0.5% from 0.6%, Asset Purchase facility expected unchanged at 200bn. BoE Interest rate decision expected unchanged at 0.5%followed by the MPC Statement.

Euro:

Euro sellers can at last take a breather today after the kicking the single currency has taken over the last week or so. The highly anticipated Portuguese bond auction which took place yesterday saw a strong demand with the under pressure European country managing to sell almost €1.25bn in two bond auctions. The average yield on the June 2020 bond fell to 6.716% from 6.806% in the previous sale in November, still under the crucial 7.0% mark which some analysts had feared. This took the pressure of the euro and helped the single currency rally against the majors. It took around three quarters of a cent of the pound, and an impressive two cents off the dollar. The EUR/USD cross was also helped by a recent gain in risk appetite which saw the dollar sold off. To¬day traders will focus on Spain’s bond auction which will be closely monitored to gauge the appetite for Spanish bonds. If successful, this also may lead to a small gain for the under-fire euro.

Data

12.45: ECB Interest Rate decision expected unchanged at 1.00%. 13.30: ECB Press Conference.

General:

• Oil hit a two-year high of more than $98.00 per barrel in London on Wednesday, as appetite for risk re¬turned to the market.

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