Euro retraced most of Monday’s decline against the dollar as investor confidence rose following Spain’s successful short term debt auctions this morning, notwithstanding the much higher yields. Adding to improved sentiment, developments out of the G20 Summit include a near doubling of the IMF’s resources, to $456 billion and a promise to take all necessary measures’ to help protect Europe and the euro. EURUSD bounced from the Europe session low of 1.2567 to hit a high of 1.2628.
Sterling underperformed against the dollar and euro after UK inflation data. The drop in CPI raised expectations of the likelihood of further quantitative easing by the Bank of England. The slowing of inflation increases the chances of easing from the BoE, where policymakers are concerned about the decelerated pace of domestic growth. BoE minutes on Wednesday will provide market participants with a better idea of the stance of MPC members. GBPUSD fell to a low of 1.5614 after the inflation data from 1.5694 but soon recovered going into the US session.
Yen was stronger, up 0.3 percent, helped by a weaker dollar. USDJPY opened in Europe at 78.97 and fell to a low of 78.83 before recovering slightly.
Looking ahead into the U.S. session today, the economic calendar includes U.S. housing starts and building permits, where growth is expected, albeit at a slower pace than has previously been seen. Tomorrow’s US Fed meeting will keep dollar subdued. The FOMC are expected to introduce more easing, and close attention will be paid to Bernanke’s speech which is expected to have a shift in tone.
Aussie recovered from an earlier decline when it fell following the RBA minutes this morning on its June 6th meeting. AUDUSD rose to a high of 1.0174 in European trading, the highest since May 8.