The currency blog

The Euro reached a two month high versus the US Dollar late on Friday as investors remain content for the time being with better than feared results from the European Central Bank’s tender facility. The Euros surge continued into Friday afternoon’s session on the back of weaker than expected US Non Farm Payrolls data. The risk and commodity currencies took a bit of a hammering late on Friday with both the Euro and Sterling making headway going into the Independence Day Holiday affected weekend and have retained the move so far today.

This week is a busy one in terms of key central bank meetings. First up is the Reserve Bank of Australia announcing its latest policy decision on Tuesday with the market consensus expecting no change to the base rate. The minutes from the June meeting clearly indicate that the RBA has adopted a wait-and-see posture as the Board awaits “information on how the recent market uncertainty might affect the global economy”. The next quarterly CPI estimates not due for release until July 28th, was also cited as a critical input to future rate decisions.

Next up on Thursday is the Bank of England’s turn. After several months of uneventful policy decisions by the BoE, Thursday’s announcement will be the most eagerly awaited for quite some time. Whilst no change in the bank rate is expected, it’s the first meeting since the emergency budget on June 22nd. The minutes, due for release on July 21st will be scrutinised for any sign that fiscal consolidation could deter early rate hikes. Furthermore, signs of division on the committee have also recently emerged, culminating in MPC Member Andrew Sentence’s decision to vote for a rate hike at the June. Meanwhile fellow member Adam Posen has indicated he is in “no rush” for a rate increase because there is no immediate panic over rising inflation.

Finally, Thursday lunchtime sees the European Central Bank step up to the plate with President Trichet’s post-policy decision press conference being the main focus. No change to the refinance rate is forecasted with it remaining at 1.0%. As such, questions will likely focus on bank stress tests, and whether recently announced fiscal consolidation plans may influence ECB policy.

Global data is concentrated on the end of the week with the bulk coming from the UK and the Eurozone. For today, expect very quiet trading sessions in most, if not all, markets.

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