Sterling continued to rise against the euro as further worries over the state of the eurozone crept into investor views. The ongoing constitutional court case in Germany is likely to cast a shadow of doubt over Europe for the considerable future. The case has raised serious questions as to whether ESM funds can be used to bail out banks rather than nations and, consequently, emergency funding for troubled banks could be withdrawn. Evidently this could plunge the eurozone into further turmoil. Release of growth data from China will be watched closely as economists try to gauge the impact on worldwide growth of the current European trouble.
Sterling
Sterling continued to rise against the euro and also clawed back some losses versus the US dollar in the run-up to the FOMC minutes. Upon release of the minutes, sterling’s losses were quickly erased as the possibility of imminent QE3 from the states was cooled. After climbing on the back of the three-and-half-year highs, sterling may come under some selling pressure as traders look to take profit. With no local data the pound is likely to trade on the back of risk sentiment and global data.
US dollar
The US dollar gained across the board after the release of the Federal Reserve’s minutes revealed that additional asset buying by the Federal Reserve was far from imminent. The report showed that although further stimulus to the economy might be necessary, only two members voted for an immediate extension to quantative easing measures, buoying demand for the US dollar. In other news wholesale inventories rose 0.3 per cent, which was in line with expectations and the trade deficit narrowed to $48.7 billion.
Euro
Concerns regarding the eurozone’s ability to activate bailout founds hit the single currency hard, sending the single currency to fresh three-and-a-half-year lows against sterling. Germany’s Finance Minister voiced what was already suspected by investors; that any significant delay by the German constitutional court to approve the proposed European Stability Mechanism will inevitably undermine confidence in the eurozone and could lead to yet more market turmoil.
Japanese yen
The yen continues to make safe haven gains in the run-up to the release of Chinese growth data. The Bank of Japan said that it maintained its view that the Japanese economy was slowly picking up by way of improving domestic demand.