This week's trading is highlighted by a mix of potential
monetary policy moves and sovereign debt risks.
The dollar bloc central banks of Australia and
are due to meet this week. The former (
) is expected to keep interest rates on hold but may perhaps
surprise the market with a signal to increase rates in the near
term. The latter (
) is forecasted to hold rates steady and not signal any near term
changes to monetary policy.
On Wednesday both the Bank of England (BoE) and the European
Central Bank (ECB) will hold their respective press conferences.
The BOE will not be making any adjustment to the interest rate nor
to the Asset Purchase Facility as the central bank will most likely
attempt to delay raising interest rates as long as possible in
order to aid the ailing British economy. On the opposite side of
the spectrum ECB President Trichet will likely
signal a rate increase
to come in the following month. This event will most likely be the
highlight of the trading week event risk runs high. Traders should
remember the March 5th
ECB press conference
where Trichet failed to use the expected wording and the EUR/USD
began to unwind from its 17-month high.
The interest rate story will be the headline event but the
European sovereign debt crisis has only temporarily been put on the
back burner at many of the major forex trading desks. While a
temporary deal looks to have been cut between the EU/IMF and Greece
in order to stave off a default in July, the parties continue to
negotiate a potential restructuring of
Greek sovereign debt
The political winds have shifted in Portugal as the incumbent
party looks now to form a political coalition. This development has
Portuguese sovereign debt yields easing from highs last week.
Turning to the US, last week's dismal non-farm jobs report and
increased unemployment rate underscores how slow the US economic
recovery is progressing. Talk of QEIII was in most of the major
financial newspapers over the weekend as economists and talking
heads weigh the odds given the political headwinds the US faces
going into an election year and the flack the Fed took with QEII.
Moody's note last week warning on the US debt rating also puts
increased pressure on the President and Congress to come up with a
potential solution to the deficit.
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