Focus for currency markets will be placed squarely on the outcome of the Portuguese bond auction. Investors will want to see that the country is able to pay investors a sustainable yield to hold their debt. Spain and Italy are scheduled to auction off debt tomorrow, while the Bank of England and European Central Bank will hold monetary policy meetings. The deluge of potentially market moving events could prompt currency traders to take a “wait and see” approach a bit longer, which would translate into range trading for major currency crosses.

Sterling

Sterling is trading higher on the back of slightly renewed confidence going into the Portuguese bond auction. Additionally, sterling could get a lift from speculators going into Bank of England MPC meeting. Investors might be inclined to speculate that the MPC offers a hawkish statement or even gets closer to a rate hike now that inflation has stayed above the central bank’s target for some time, particularly as one survey shows inflation expectations are becoming unanchored.

US dollar

The US dollar traded in ranges ending slightly lower against the euro and most major currencies. The dollar’s drop came on the back of a slightly improved outlook for the Portuguese bond auction. In local markets, wholesale inventories fell - 0.2 per cent versus an expected rise of one per cent. The data had very little impact on currency movements, but something that could have longer term consequences for the dollar is the growing split seen amongst Fed members.

Euro

Focus will be on the Portuguese bond auction. Some confidence returned to the markets on the back of ECB intervention into debt markets and comments made by the Portuguese Prime Minister. The Prime Minister announced that the budget deficit for last year’s was below forecast. The relatively good news helped bond yields drop from record highs. Indeed, today’s auction is not likely to fail, but the price the government will have to pay investors to hold its debt will be highly scrutinised.

Japanese yen

The Japanese yen is trading slightly higher after the government upgraded its economic outlook for the first time since March 2010. Asian equity markets are mixed and investors are sidelined going into the Portuguese debt auction.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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