Super Mario To The Rescue?

The Italian senate passed the austerity measures demanded by the European Union, paving the way for Mario Monti, a former European Union (EU) competition commissioner, to take charge as the nation’s Prime Minister, following the resignation of Silvio Berlusconi. Meanwhile, the urgency to resolve Greek debt crisis seems to have taken center stage, as evidenced by the comment of the nation’s Finance Minister that his priority is to ensure that the country gets a sixth loan under an EU-led bailout. With no major economic releases scheduled in the UK today, we expect the Euro to move cautiously higher against Sterling, and find further direction from the outcome of the Italian 5-year bond auction, worth as much as €3 billion, slated for later today.

Pound Sterling – UK Markets

Sterling is trading lower against the major currencies amid market speculation that the Bank of England (BoE) may lower its 2011 growth forecast to around 1% later this week, from an earlier estimate of 1.5%. Meanwhile, the BoE indicated that “write-offs of loans to non-financial corporations” almost tripled in the three months to June 2011. Additionally, economic data lined up for this week is not expected to provide much support for the Pound against the majors. The jobless rate in the UK is expected to climb to 8.2% for the three months ended September 2011, while the annual consumer price inflation is expected to remain above the 5% mark. However, reports indicate that lawmakers in the UK are planning a £50 billion housing and road-building programme to boost UK growth, amidst clouding prospects for a nation’s economy so heavily affected by events unraveling in the Eurozone.

US Dollar – US Markets

Uncertainty over the outcome of Italian 5-year bond auction scheduled for today, has somewhat dented investors’ risk appetite and boosted demand for the US Dollar as a safe haven asset. Meanwhile, highlighting the fragile state of US economy, the Federal Reserve Bank of San Francisco President, John C. Williams, has warned that he sees a “significant risk” of a new asset bubble forming that would leave the financial system and economy vulnerable. With a light economic calendar today the dollar is expected to move higher against the majors in the near term, on the back of increased risk aversion amongst traders and further clues of developments in the Eurozone.

Euro – European Markets

Political uncertainty in the Eurozone has faded somewhat. However, the Euro is trading lower against the US Dollar this morning, as traders remain cautious ahead of the €3 billion auction of Italian 5-year notes set to mature in September 2016. The intense political crisis in Italy, which recently became the epicenter of the European debt woes, eased somewhat after the Italian Senate approved the austerity measures demanded by the EU, and appointed Mario Monti as the new Prime Minister. Moreover, positive comments from the Greek Finance Minister helped investors to cement their confidence in the region. Expect the Euro movement to be dictated by the outcome of the Italian bond auction and the release of Eurozone’s industrial production data, which is expected to show an annual decline in September.

Other Currencies – Highlights

The Kiwi Dollar is marginally weaker against the US Dollar, as traders keenly await the outcome of the Italian bond auction, due later today, to gauge market appetite for the nation’s debt. Earlier today the Kiwi Dollar had strengthened against the majors, after a government report indicated that retail sales adjusted for inflation climbed more-than-expected in the third quarter, posting the largest increase since the fourth quarter of 2006.