The Bank of England minutes indicated we are very close to more QE in the UK with a 5-4 split in favour of leaving it on hold this month, but could be reintroduced as early as next month with one more member of the MPC voting in its favor. QE dilutes the currency in question as the market is flooded with more money in an attempt to promote growth. This saw the Pound briefly lower against the Euro and Dollar but nothing too drastic.
Yesterday the ONS (Office of National Statistics) showed unemployment in the UK had fallen by 51k in the 3 months leading up to April. It was evenly spread between part-time and full-time workers, previously any decline in unemployment has mainly been led by part-time workers. However as always there was a double-edged sword, the number of people in May claiming Job seekers Allowance had actually risen by 8100 to 1.6 million. At the time of these releases this was mainly seen as positive for Sterling though, rising slightly against the USD and the Euro.
Retail Sales figures today both YOY and MOM could be the main driver for the direction of Sterling. Expected to be better than the last results any surprise could cause some volatility.
Greece finally has a government! Made up of 3 parties the coalition will include the New Democracy, Pasok and minority Democratic Left. Questions over what they will propose to European Leaders with regards to a new relaxed Austerity package are already being raised and could be a long drawn out battle. With that in mind perhaps this new government may just bring more uncertainty to the Eurozone for investors which is exactly the opposite of what it needs.
Rumours that the Eurozone may be getting some of its sovereign Debt bought directly with bailout money helped to lower Spanish and Italian bond yields yesterday from record highs last week. When other failing peripheral Eurozone’s have needed a bailout a consistent catalyst was all of them being frozen out of the market as their bond yields hitting the all too expensive 7% level. Whilst the Euro did get a brief respite yesterday, many are still speculating that a bailout in Spain and Italy is imminent so watch this space. A short-term bond auction for Spain today will show whether Spains yield will continue to lower or again rise to record levels.
Mario Draghi, head of the ECB, will talk this afternoon about his immediate projections and sentiments for Europe. He is seen by many as the single most biggest influence on shirt term movement for the Euro.
German manufacturing and Services Data both came out lower than expected this morning proving even the germans aren’t immune to the crisis.
Throughout much of trading yesterday the Dollar weakened over continued speculation that the FED may be reintroducing QE3, however it was not to be, but they did reintroduce Operation Twist. Operation Twist promotes growth by selling short-term bonds and using the funds to buy long-term bonds. It is an attempt at reducing lending costs and mortgage rates.
The FED cut its economic growth forecast for 2012 from 2.9% to 2.4%, whilst also moving their prediction on unemployment from 8% up to 8.2%.
With Initial Jobless Claims due out today it may throw up a surprise which will no doubt cause movement for the dollar, of course direction dependant on positive or negative data.