Forex Market Review – Euro briefly rallies on Spain plan to cut deficit

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Euro briefly rallied as Spanish and Italian bond yields fell following Spanish PM Mariano Rajoy announcement of Spain’s comprehensive austerity package. Although these measures and cuts are highly unpopular among Spaniards, they will help improve confidence in the euro zone. Spain is the fourth largest euro zone economy and is undergoing a huge banking crisis so tacking its debt problem is very important in order to prevent contagion to the rest of Europe.

 

EURUSD opened the European session at 1.2266 after a quiet Asian session of consolidating losses near a two-year low. The pair rose to a high of 1.2295 before falling back down towards 1.2255 going into the North American session. Overall sentiment in the euro remains bearish as uncertainty prevails in the euro zone. There is  concern about Italy, whose PM Mario Monti said Italy country could be requiring aid from the euro zone’s rescue fund to ease its borrowing costs. Meanwhile the launch of the ESM rescue fund is being delayed due to Germany not yet ratifying it.

 

GBPUSD rallied to a high of 1.5577 from a session low of 1.5522. Sterling is up 0.3 percent from yesterday’s close and moving in line with broader market sentiment in the absence of domestic data.

 

Yen is up 0.2 percent against the dollar, with USDJPY falling towards 79.12 from 79.33. The dollar is weaker ahead of the U.S. Federal Reserve FOMC minutes due later tonight.  These  minutes from the latest policy meeting may give some clues regarding the outlook for monetary policy. Focus will be on hints of more easing. This usually weakens dollar.