Today the Portuguese bond auction is taking place. This has been much pre-empted over the last few days for the insight it will provide into how high demand for Portuguese bonds are and subsequently whether the rumored rescue-package for Portugal may come to pass. The Euro has inched up against the Dollar over the last two days but may show volatility today depending on how successful or not the auction is. Portugal has denied it will be the next nation (following Greece and Ireland) to receive emergency funds. One concern is that some have pointed out that if Portugal does ultimately end up requiring funds, the next bailout – already being labeled as Spain – would begin to stretch the existing bailout funds.
Pound Sterling – UK Markets
Sterling has maintained its rates at around a four month high against the Euro and gained on the Dollar despite some poor news yesterday with regards to retails sales and the British Chamber of Commerce’s outlook for UK growth. News has emerged this morning that the UK trade deficit has widened.
This morning’s data release has revealed that both the UK trade and goods balances have widened in deficit for the month of November. The total trade balance deficit came in at -£4.123 billion against an expectation of - £3.946 billion.
Tomorrow sees the monthly Bank of England policy meeting. Policy on rates and support measures are expected to remain the same. How today’s Portuguese bond auction pans out may be the most crucial factor in determining Sterling’s rate against the Euro and whether it will continue to hold.
US Dollar – US Markets
The Dollar Index, which measures the Dollar against a basket of other currencies, fell by 0.3 percent yesterday which was the third day of consecutive falls. The currency was not helped by the news that Japan was pledging to buy Euro-zone bonds.
The US economy itself, is moving back on the economic calendar with more prominence this afternoon, as mortgage applications and Import Price data come in. Tomorrow and Friday really see the US data influx step up which has the potential to bring movement. The Producer Price Index giving an indication of inflation rates as well as the trade balance figures for November are due tomorrow, with data on Friday spanning retail sales and industrial production.
Euro – European Markets
The Euro rose for a third day against the Dollar on the continued momentum from Japan’s pledges to buy European bonds as well as bond-buying from the ECB itself. Today sees the important Portuguese bond auction take place amidst speculation of a bail-out package.
The bond auction today will be closely watched by markets to see how much demand there is for Portuguese bonds and how difficult or not the nation finds it to raise funds. Some analysts have said that there will be sufficient demand, shored up by the last few days of ECB bond buying.
If however, the bond auction should fail to be successful, Euro weakening is to be expected.
Other Currencies – Highlights
Japan’s decision to join China in purchasing European bonds as part of the European Financial Stability Fund has had a knock-on effect on the Yen. The Japanese currency has weakened following the move.
Some have suggested that this could be a deliberate move as the strengthening Yen has been an ongoing problem for the export-led Japanese economy. There is rumoured news from officials that Japan is now looking likely to make European bond purchases.
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