Will ECB Clear the Mist?

The ECB yesterday shrugged off reports of setting threshold limits on yields in peripheral bond markets. The clarification however had minimal impact, with the Spanish bond yields slipping to the lowest level in more than a month and elevating hopes of a positive outcome from today’s auctions. Moreover, optimism brewed as leaders of Germany, France and the Eurozone are meeting bilaterally this week to pave way for an ECB intervention and tackle debt problems in Greece. Back at home, the latest public finances data just out has revealed that the British government managed to repay some of its debt in July, the third instance this year.

Pound Sterling – UK Markets

The Pound is trading higher against the US Dollar, as the government borrowings data just released revealed that UK repaid some of its debt for July. Meanwhile, markets await CBI industrial trends survey for further insights on the manufacturing activity in the UK. Despite recent data from Rightmove showing renewed weakness in the housing market, the Pound traded flat against the Euro in yesterday’s session, as the ECB rejected speculation that the central bank may limit bond yields of peripheral economies to tackle the debt problems in the Eurozone. Moreover, the German central bank reiterated its opposition to such a move. Sterling steadily advanced against the greenback as the state of UK’s economic situation supported the belief that the BoE would refrain from adding more stimulus. With the backdrop of key meetings scheduled in the Eurozone over the course of the week, the Spanish bond auction remains a key event in today’s session. The CBI’s industrial survey is also expected to play a part in influencing the markets.

US Dollar – US Markets

The US Dollar is trading lower against in peers in today’s session, as traders remained cautious ahead of the Federal Reserve’s minutes for its latest monetary policy meeting due for release tomorrow. Moreover, risk appetite has received a boost, as traders remain hopeful that the Eurozone’s policymakers’ would come up with some crisis fighting measures during their meetings this week. The US Dollar gave up initial gains against the Euro in yesterday’s session, as risk appetite among market participants grew, after Spain’s benchmark yields slid to a seven-week low, supporting the outlook for a bond auction today. Meanwhile, on the economic front, data revealed that Chicago Fed’s national activity index climbed for July, albeit at a slower than expected pace. In the absence of any triggers from today’s economic calendar, market participants are expected to look forward to the Spanish bond auction and the build up to this week’s meetings for further direction in the currency markets.

Euro – European Markets

The recent decline in the Spanish 10 year bond yield has sparked a fresh round of optimism that the nation could witness a positive response to its bond auctions due later today. Moreover, traders remain hopeful that the Eurozone leaders might agree on key set of measures during their meetings later this week. The underlying optimism has strengthened the Euro against its major counterparts in today’s trading session. Meanwhile, the ECB denied reports of its planned bond buying strategy to limit yields. The tussle between the German policymakers continued, as the Bundesbank reiterated its opposition for an ECB intervention in peripheral bond markets, while a German ECB board member has thrown his weight behind mass purchases of the Spanish and the Italian debt to prevent the Eurozone break-up. With little in store on the economic front, market participants are likely to remain cautious in the build up to the meetings later this week.

Other Currencies – Highlights

The Australian Dollar has rallied against its major peers in today’s trading session, as the minutes of the latest monetary policy of the Reserve Bank of Australia did not offer fresh hints of additional monetary easing measures. The minutes indicated that the central bank’s decision to leave its benchmark rate unchanged at 3.5% was “appropriate” given the outlook for domestic inflation and growth; and despite the weakness in the global economic environment. However, worries over Chinese economic prospects prevail, as rising property prices in China has sparked speculation that the government might impose fresh property curbs. The outcome of the Spanish bond auction in today’s session is expected to offer further direction to high yield currencies. With leading index being the only major domestic data on tap this week, the Aussie Dollar is expected to be closely influenced by the outcome of key meetings from the Eurozone during the course of the week.