Sentiment lurches from despair to euphoria

Currencies Direct September 28th 2011 - 2 minute read

The huge gains in stock markets around the world yesterday were not mirrored in by corresponding moves in the currency markets, which saw only modest gains for Sterling against the Dollar and Euro. European politics continues to drive sentiment between euphoria and despair as first a Greek deal looked to have been reached, before this morning we find out there is still huge disagreements between member states over details of plan.  The Euro ship is lurching from side to side as traders and investors rush from one side to the other on the back of every new announcement.  On one side German officials have been joined by other creditor nations, Finland and the Netherlands, in calling for the private sector to take on a greater slice of any write down. On the other side sits France, who are desperately trying to keep losses away from their banks, who only just survived a recapitalisation after heavy falls in their share prices in the past few weeks.

With a lack of Sterling data this week and with the Bank of England meeting coming up next week, the MPC have all hands to the pump trying to warn the market of another round of quantitative easing coming either next month or more probably the month after. Several members have indicated that they may join Adam Posen in voting for further monetary easing if the economic picture continues to deteriorate. Careful not to push market expectations to far, the MPC hawk Andrew Sentence has also been in the press stating worrying about the inflationary effects of another round of QE. What the Bank is making clear is the clear change of stance from a neutral wait and see, to a much more dovish tone and for Sterling that looks like it will be enough stall any sort of recovery against the Dollar in the near term.

Very little data out for the rest of the week, but the highlights include US durable goods orders this afternoon and tomorrow American GDP data. Lastly Friday see the University of Michigan confidence survey released.

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