Market Review – 22/03/2011 19:10 GMT
Euro retreats from a 4-1/2 month high after Irish note yields surge
The single currency retreated from a fresh 4-1/2 month high on rumours that a large Irish bank may have missed an interest payment on Tuesday.
Although the euro initially extended recent ascent to a fresh 4-1/2 high of 1.4249 in European midday following hawkish remarks from ECB President Jean-Claude Trichet and other policy makers in the previous session, price then swiftly fell to an intra-day low of 1.4179 after the rumour. The single currency later staged a recovery as Ireland’s NTMA, National Treasury Management Agency, said speculation on sovereign debt was unfounded.
According to Bloomberg, Irish 2-year note yields surged 62 basis points to as high as 10.18% on Tuesday.
The British pound strengthened to a 14-month high in European morning due to renewed speculation that BoE would raise rate in coming months after U.K.’s CPI rose more than expected in February. Despite cable’s sideways move in Asian session, price climbed in European morning and the pound later surged to a fresh 14-month high of 1.6403 after the higher-than-expected February CPI data.
U.K. February CPI rose by 0.7% m/m and 4.4% y/y versus the economists’ forecast of 0.6% m/m and 4.2% y/y respectively. U.K. RPI increased by 1.0% m/m and 5.5% y/y against the expectations of 0.7% m/m and 5.2% y/y. U.K. PSNCR came in at 6.981 bln pounds in Feb whilst PS net borrowing was 10.28 bln.
Cross-buying in sterling versus the euro also supported cable as eur/gbp declined sharply from 0.8730 to 0.8661.
In other news, Portugal’s parliament will vote on the government’s latest austerity measures on Wednesday. Prime Minster Jose Socrates has threatened to resign if the new budget is not approved by the opposition. The main opposition Social Democrats has refused to back them and has begun to talk about snap election, bringing more uncertainties to the eurozone.
Data to be released on Wednesday include:
U.K. Bank of England meeting minutes and Budget report, Eurozone industrial orders and consumer sentiment, U.S. new home sales.