Intraday Market Thoughts

BoE Minutes Split Unchanged, Euro Eyes $1.42

by Kyle Morrison
Jul 20, 2011 10:15

Euro recovers despite possible ECB default split, Obama backs gang of six compromise, BoE minutes show no change in split, further boosting GBP. The trades from our Premium Intermarket Insights are nearing most of their targets.

The release of this month's BoE MPC minutes showed no change in the split (7 voted for no change in rates, 2 voted for a hike and Posen remains the ony voter for further stimulus). Interestingly, the majority of the MPC made no explicit reference to QE--something the market was focusing on ahead of the release.

Euro recovered some ground from the lows seen earlier this week despite IMF warnings of the dangers of further prevarication in finding a solution to the debt crisis. Anyone hoping for a solution this week would have had their optimism tempered by Angela Merkels assertion that any solution would take time and that Europes problems would not be resolved with one big fix.

A successful Spanish t-bill auction yesterday bought the euro some respite yesterday, however there did appear the first signs of ECB wavering on the subject of a debt default when ECB governing council member Jens Nowotny touted the idea that the ECB might be prepared to countenance a selective default of Greek debt as a way forward, putting him at odds with recent comments made by ECB President Trichet. Whether he was preparing the ground for a tactical softening of the ECBs position is not known, but given the lack of any denial it would seem that a movement on that position may well be coming. Today Portugal looks to sell 3 and 6 month T-Bills.

Optimism over a resolution to the debt ceiling negotiations in the US grew overnight after President Obama backed a bi-partisan gang of six proposal of $3.7trn to end the current impasse between Democrats and Republicans. There still remains some way to go though as Republican Speaker of the House of Representatives John Boehner quickly poured cold water on the proposals stating that they remained some way short if Republican expectations. Be that as it may some Republicans do appear to be breaking ranks with some support for the compromise.

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