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Publication date: 10 May 2012
Author: Alistair Cotton, Currencies Direct
Euro sentiment continues to fall
Developments in Greece and Spain continue to weigh on Euro sentiment, driving the single currency lower across the board. The Spanish government part-nationalised stricken lender Bankia, taking a 45 per cent stake in exchange for €4.5 billion in emergency loans and we can expect this to be the first of several injections of capital by the Spanish authorities into their struggling banking sector. The search for a Greek government also looks set to drag on, after the second placed Syriza party in the recent elections failed to form a coalition. The mandate now looks set to pass to the third placed Socialists in a ludicrous game of pass the parcel, with every failure racheting up the pressure to find a solution. Much needed bail-out funds are being withheld until a government is in place, but with no end in sight to the election merry-go-round, EU officials need to act quickly to avoid making the situation worse than it already is.
This morning is an important one for Sterling with Industrial Production data due along with the Bank of England announcement on interest rates and the asset purchase scheme at midday. The IP number for March is expected to show further declines in output but a number to the upside is a possibility after the rebound in construction in the last two months. As we’ve mentioned before this week, it would be a huge surprise if the BoE made any changes to rates or QE.
Australian employment came in much better than expected, 4.9% against expectations of 5.3% catching the markets completely on the wrong side. The AUD is off around 4% against the USD and GBP over the last few weeks after the central bank cut interest rates and looks set to cut further this year. The market was quite short the Aussie, and the buying back of those positions has forced a quick 50 point rally overnight. Also out today is the ECB monthly report, closely watched to see the extent of bank borrowing from the central bank over the last month.