Market Review – 23/03/2011 20:36 GMT
Euro falls after Portugal’s parliament rejects government’s austerity plan
The single currency declined after Portugal’s parliament rejected the government’s austerity plan and this may lead to fall of Portugal’s government as Prime minister Jose Socrates submitted his resignation.
Earlier, despite euro’s brief rebound from 1.4149 to 1.4215 in European midday after remarks from ECB’s Bini Smaghi, price then nose-dived to 1.4100 in NY midday and then weakened to 1.4075 after vote outcome from Portugal’s parliament.
ECB governing member Bini Smaghi said in an interview that keeping interest rates so low risks creating market distortions, excessive risk-taking.
Draft conclusions prepared for a summit this week showed eurozone member states will only take a decision on how to increase the effective capacity of their bailout fund by the end of June. The draft conclusions read ‘The preparation of the ESM treaty and the amendments of the EFSF agreement, to ensure its 440 bln euro effective lending capacity, will be finalised so as to allow national procedures to be completed in good time for signature of both agreements at the same time before the end of June 2011’.
The British pound tumbled against the dollar after the minutes of Bank of England Monetary Policy Committee meeting in March. Despite cable’s sideways trading in Asian session following the rise to a 14-month high of 1.6403 in previous day, price fell sharply lower in European morning on active cross-selling in sterling vs euro, eur/gbp jumped from 0.8654 to 0.8725, and the pound’s intra-day decline accelerated after the release of March minutes. Cable eventually reached 1.6219 after the UK government lowered its 2011 growth forecasts.
Minutes of BOE’s March 9-10 meeting showed the Bank of England’s Monetary Policy Committee maintained its 6-3 split in favour of keeping rates on hold this month. Andrew Sentance maintained his call for a 50 basis point rate rise whilst Adam Posen reiterated his lone call for an additional 50 bln pounds of quantitative easing.
British Finance Minister George Osborne cut the 2011 growth forecast to 1.7% from previous 2.1% in his budget. He also added that ‘soaring oil prices meant inflation would remain between 4-5% this year’.
Data to be released on Thursday include:
Japan Import/Export and trade balance. Germany Import price index, manufacturing and service PMI, Eurozone manufacturing and service PMI, U.K. retail sales, U.S. jobless claims and durable goods orders.