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Right now, the euro is benefitting from the fact that time is on its side. There’s no doubt that yesterday’s increase in ECB rates will not help the periphery out of their current problems, but the impact of this is not going to be seen for some time to come.   Furthermore, the Portuguese request for some sort of bail-out (we may get more details on this today) has, if anything, been taken positively by the single currency, as it removes a major uncertainty from the markets.   But there again, whilst there is the initial relief, there remains the wider issue that whilst three countries have now received a rescue deal, the EU itself has done very little to tighten the structures to reduce the possibility of a repeat scenario in the future.   In other words, we still seem to be long on sticking plasters and short of medicine.   Elsewhere, it’s fingers crossed that the US reaches a budget deal today.

Guest post by FXPro


Commentary

Bank of England delivers steady rates.
The price action on sterling ahead and after the Bank of England minutes suggested that some were punting on a surprise, but the moves were not dramatic.   Whilst a couple of months ago, the market was just about fully priced for a 25bp tightening at the May meeting, but that has now fallen dramatically. The probably now is just over 50%.   The issue for the Bank is that the bounce-back in activity data seen during the first quarter is probably not as much as it were anticipating, so GDP data for Q1, even though backward-looking, will be a key component of the jigsaw.


US government taking it to the wire on budget deal.
It seems that the US is taking it right to the wire in terms of securing a budget deal.   If nothing happens, then the US government shut-down will commence at midnight tonight.   The President remains hopeful that a deal will be announced fairly early in the day.   The prospect of a government shut-down, whilst not necessarily a major dollar negative factor, has nevertheless highlighted just how much fiscal issues are going to become an ever more important factor for the US in the coming months and also years.


Gold firm with silver on fire.
It looks as if we could be back to the days of flagging up a new record high on gold on a daily basis.   But, in terms of a moving train that no-one is daring to stand in front of the silver price, which has risen a further 5% so far this month.   Furthermore, whilst global ETF holdings of gold are at a record high, the same is not true for gold, suggesting that, in terms of investors riding the wave but not holding onto the physical asset, silver is still by far in the lead.


ECB President Trichet suggest that’s it for now.
The rate increase was just as expected, all key rates rising 0.25%. Even though the head of the ECB stated that risks on price stability were still seen as being on the upside, his other comments were fairly careful to put the case that this was not the start of a series of back to back rates increases.   It’s noticeable that interest rates futures were remarkably settled on the day, which is more the exception than the rule on the day of an ECB meeting.


German trade data shows bounce-back in exports.
The February data, released this morning, showed a widening in the trade surplus to EUR 12.1bn from EUR 10.1bn in Feb.   The data was not as strong as expected, but the fall in exports seen in Jan was reversed, exports rising 2.7% on the month.


Looking Ahead

Friday: JPN: Trade Balance, February (expect JPY744bn, previous -JPY394.5bn); GER: Trade Balance, February (previous €10.1bn); FR: BOF Business Sentiment, March (previous 110); UK: PPI Output Prices, March (previous 0.5% MoM and 5.3% YoY); CAN: Net Change in Employment, March (previous 15.1K).

Source: Bloomberg