Daily currency report
The eurozone sovereign debt crisis is back on the minds of investors again after Greece voted on its latest austerity bid in order to safeguard its euro membership. Ahead of the vote, the euro tumbled through usually strong support prices to a two-month low against the US dollar, and could still face another wave of selling pressure.
The European Central Bank will announce its latest decision on monetary policy and market watchers will pay very close attention to President Mario Draghi’s latest assessments. The Bank of England will also deliver its monetary policy decision and traders managing sterling positions are likely to feel nervous about what policymakers will make of a contracting eurozone economy.
The US dollar and yen are back in command of foreign exchange ahead of another high-profile global economic calendar.
The Bank of England will announce its latest decision on monetary policy although policymakers are not expected to change, or adopt a new direction. However, minutes from the meeting may reveal that Governor Mervyn King, and his fellow central bankers, are still not 100 per cent convinced the British economy can sustain growth without another quantitative easing top-up. Recent PMI surveys on key sectors of the UK economy have highlighted concerns that activity on the ground is still unstable. With the European economy slowing sharply and drowning business confidence, the BoE could keep the option of additional monetary easing firmly on the table and that prospect could unsettle the pound.
Equity markets sold off sharply and traders poured into the safety of the US dollar following comments from politicians in the US, which implied that US President Barack Obama will struggle to avoid a ‘fiscal cliff’ in January. Although Obama comfortably secured another term in office, the opposition Republicans repeated warnings that they will not support Obama’s proposed strategies for the US economy. Political gridlock in Washington could push the economy over an automatic fiscal policy shift worth $600 billion, and send the world’s most influential economy into recession.
The euro sank to a two-month low against the US dollar ahead of a vote in Greece, which investors feared would revive speculation of a eurozone break-up, signalling that Europe’s growth-engine economy is now suffering badly as the eurozone sovereign debt crisis drags on.