Daily currency report

Currency markets were surprisingly static despite reports the European Central Bank was considering placing a cap on borrowing rates for nations struggling to manage high debt levels. Spain’s bond yields immediately fell as confidence jumped but that optimism failed to lift the euro. Britain’s pound should be busy exchanging hands but it could be mostly selling with industrial data likely to create an even more downcast picture about the UK’s manufacturing and export industries.

Sterling

Sterling trade could get going with the Confederation of British Industry due to release its industrial trends survey for August which is forecast to show weakening factory activity in Britain. CBI’s report may show order books at manufacturers thinning as European demand wanes, reinforcing the Bank of England’s caution that debt troubles in Europe are damaging attempts to rebalance the UK economy through export growth.

US dollar

The US dollar is poised to benefit as new question marks about Greece’s financial health swirl, keeping traders uneasy and using the greenback as a shield against global risks. The Federal Reserve is due to publish notes from its two-day policy meeting that ended earlier this month which may strike a markedly less dovish tone than what some analysts expect. The minutes could reveal diminishing appetite amongst US policymakers to issue more quantitative easing with the economy showing tentative signs of stabilisation.

Euro

Spanish bond yields fell on reports the European Central Bank is considering introducing a cap on borrowing costs for indebted nations like Spain and Italy. Details suggest the ECB, through its bond-buying plans, would intervene in debt markets to limit the spread on borrowing levels between Germany and countries with high debt. Demand for the euro was tempered though after Germany’s finance ministry dismissed the report. This could now set in motion new speculation about the difference of opinion in Europe around how best to tackle the debt crisis.

Australian dollar

The Australian dollar rallied strongly after minutes from the Reserve Bank of Australia’s August 7 meeting were more optimistic than anticipated, hinting that Australia’s economic vigour could help protect it from an uncertain global outlook. The Aussie dollar had dropped close to three-week lows against the pound on guesswork that slowing growth and a stronger currency would force the RBA to cut its interest rates.