Sterling Under Pressure on Dovish Talk From BOE

Sterling is being weighed by some very dovish comments from the Bank of England on Wednesday.

Following the publication of the central bank’s Quarterly Inflation Report on Wednesday, BOE Governor Mervyn King told reporters in London that now would not be appropriate to raise interest rates, but that further asset purchases have not been ruled out.

He added that he stands behind the new government’s initiatives to reduce the deficit quickly, and that the euro zone “clearly” needs some kind of fiscal union.

The comments add to the view that rates could remain lower for a longer period of time, an unexpected development for the FX markets which thought that the central bank could be concerned about recent inflation rates.

Meanwhile, the Quarter Inflation Report said that nation’s downside growth risks have increased somewhat, but that the nation’s budget cuts could need to be more demanding than previously thought.

The report also forecasts CPI growth of 0.6% by the end of 1010, and 1.7% by the end of 2011.

The threat of weaker than expected growth, means that interest rates could remain lower for a longer period than expected, a development which is hurting the currency on Thursday.

The dovish talk was also strong enough for markets to ignore a better than expected jobs report on Thursday.

According to the office for National Statistics, UK jobless claims declined 27.1k in April, faster than calls for a 20.0k pullback and adding to a 32.7k decline in March. The claimant count rate fell to 4.7% despite expectations for no change to the prior 4.8% level.

Although the data are good for the pound sterling, the currency is being weighed upon by the threat of low interest rates for a longer period of time.

GBP/USD last traded lower by 19 pips at 1.4928 after trading between 1.4861 to 1.5045 today. Short term resistance lies at 1.5054, 1.5391 and then 1.5498 and 1.5575, with support at 1.4477, 1.4398 and 1.4111.

Euro Zone to Lend €1210 Billion to Greece

Greece continues to be the main headline in the foreign exchange complex on Monday after European leaders agreed to a €110 billion lending facility for the beleaguered nation over the weekend.

According to Eurogroup President Jean-Claude Juncker delivering the news, €80 billion in loans will come from the euro zone, with the IMF fronting the remaining €30 billion.

The package also includes a €10 billion provision which will go to creating a Greek, bank-stability fund. According to EU Monetary & Economics Commissioner Olli Rehn the interest rate on the Greek lending facility if around 5.0%, and the funds will begin being disseminated on May 19, the next Greek government bond redemption.

The big question here is whether or not the measures will be sufficient to calm the financial markets, and convince traders that Greece will not default on its debt, and that Spain and Portugal will not be dragged down.

While earlier indications suggested that the markets were happy with the news (the euro opened higher at the beginning of the Asia-Pacific session) EUR/USD has since declined as the markets have opened.

One may point out that early reports last week had €120 billion euro allocated to Greece.

Also, German policymakers have suggested the agreement will be a tough sell for the voters, which will vote in regional elections over the coming days.

The bottom line is that if Germany wavers, the single currency will remain weak, or weaken further.

EUR/USD last traded lower by 26 pips at 1.3268 after trading between 1.3262 to 1.3361 so far today. Short term support lies at 1.3225 and then 1.3115 and then 1.2965 from April 28, 2009, while resistance is at 1.3426 followed by 1.3521 and 1.3818.

Euro Zone to Lend €110 Billion to Greece

Greece continues to be the main headline in the foreign exchange complex on Monday after European leaders agreed to a €110 billion lending facility for the beleaguered nation over the weekend.

According to Eurogroup President Jean-Claude Juncker delivering the news, €80 billion in loans will come from the euro zone, with the IMF fronting the remaining €30 billion.

The package also includes a €10 billion provision which will go to creating a Greek, bank-stability fund. According to EU Monetary & Economics Commissioner Olli Rehn the interest rate on the Greek lending facility if around 5.0%, and the funds will begin being disseminated on May 19, the next Greek government bond redemption.

The big question here is whether or not the measures will be sufficient to calm the financial markets, and convince traders that Greece will not default on its debt, and that Spain and Portugal will not be dragged down.

While earlier indications suggested that the markets were happy with the news (the euro opened higher at the beginning of the Asia-Pacific session) EUR/USD has since declined as the markets have opened.

One may point out that early reports last week had €120 billion euro allocated to Greece.

Also, German policymakers have suggested the agreement will be a tough sell for the voters, which will vote in regional elections over the coming days.

The bottom line is that if Germany wavers, the single currency will remain weak, or weaken further.

EUR/USD last traded lower by 26 pips at 1.3268 after trading between 1.3262 to 1.3361 so far today. Short term support lies at 1.3225 and then 1.3115 and then 1.2965 from April 28, 2009, while resistance is at 1.3426 followed by 1.3521 and 1.3818.

Euro Under Pressure As German Support For Greece Not Certain

The euro is under pressure again on Tuesday as a German commitment to coming to the rescue of Greece is not yet certain.

Earlier this morning, German Chancellor Angela Merkel told an audience in Soest, Germany, that the nation will not release funds to Greece until it is presented with a plan to help the beleaguered nation.

The comments come ahead of a state election in Germany on May 6, and voter opposition to the Greek bailout plan is rampant.

Meanwhile, in an interview with Bloomberg News, European Central Bank Vice President Lucas Papademos said that the Greek fiscal package being prepared for May will contain measures to contain the risk that the crisis will spread to the rest of the euro zone.

Also, speaking before an audience in Athens, George Provopoulos of the Greek central bank said that Greece needs to surprise the markets by undertaking deeper than expected budget cuts so as to reinforce its commitment to reducing its debt.

Although the comments have no bearing on FX, the central banker does make an interesting point. If Greece manages to outdo expectations for its debt reduction, it would indeed bring down yields on government bonds, and help support the euro.

Meanwhile, Papademos’ comments should help alleviate some of the tensions on the euro if he proves to be correct. Unfortunately, faith in the European leadership is sparse these days, and until the region presents a solid plan to back Greece, the currency is likely to continue weakening.

As a consequence, risk aversion is high on Tuesday, making for a weaker euro.

EUR/USD last traded down 75 pips at 1.3308 after trading between 1.3299 to 1.3416 so far today. Support lies down at 1.3202, 1.2965 from April 28, 2009, and then 1.2886 from six sessions before that. Meanwhile resistance is at 1.3523, 1.3679 and then 1.3692.

Sterling Under Pressure Despite Upbeat Deficit Data

The pound sterling is under some pressure on Thursday despite a smaller than expected increase in the budget deficit.

Earlier this morning, the Office for National Statistics reported that the UK’s public finances rose to +£25.8 billion in March, short of calls for an increase to +£31.3 billion from the prior month’s revised +£8.0 billion.

The results translate into a £152.8 billion deficit, the largest since World War II.

Public sector net borrowing advanced to +£23.5 billion in March from a revised +£9.7 billion, just short of calls for a +£24.0 billion level.

Simultaneously, the ONS also reported that annual retail sales excluding fuel were in line in March, rising 4.0% compared to the revised 5.0% increase the month prior. Headline sales advanced 2.2%, just short of calls for a 2.3% gain and prior 3.2% increase.

The data failed to have much of an impact on FX, which moved instead on a smaller than expected budget deficit reported simultaneously.

On the news, GBP/USD popped up 29 pips, but continued to head south, last trading lower by 19 pips at 1.5392 after trading in a range between 1.5376 to 1.5473 today.

Short term resistance lies at 1.5507, 1.5524, and the nothing until 1.5575. Support is found at 1.5290, 1.5192, 1.5130 and 1.4799.

The euro’s demise on Thursday appears to be weighing on the currency.

German Media Reports That Greece Will Borrow €90 Billion Over Three Years

The euro continues to be under pressure on Wednesday after more downbeat news on the Greek debt crisis.

Earlier this morning the Handlesblatt news agency cited unnamed sources in the EU as saying that the Greek lending facility could total €90 billion over three years.

Meanwhile, an unnamed German government source said that the final bill could be “twice that much”.

An EU spokesperson vehemently denied the claims, saying the Handlesblatt article is based on “speculation”.

Adding to concerns were comments from the Fitch ratings agency saying that it won’t be long before Greece reaches out for aid from its friends.

In an interview with Bloomberg News, Fitch Ratings Director Christopher Pryce says Greece will likely be forced to activate its emergency lending facility with the EU and IMF within the next two weeks. He also pointed out that Greece needs to raise €11.6 billion by the end of May.

Portugal was also weighing on the euro’s gains on Wednesday after the EU said the nation may not meet 2010 budget goals.

Earlier this morning EU Monetary and Economics Commissioner Olli Rehn told audience in Brussels that Portugal will likely need to adopt additional measures in 2010 to meet its budget obligations, and that the economic forecasts which the nation had incorporated were too optimistic.

Rehn also said that financial aid needs to become “unattractive”, but declined to comment on how this could be done.

Both comments are weighing on the euro, which should be gaining on the back of declining risk aversion on the USD.

EUR/USD last traded lower by 3 pips at 1.3610 after trading between 1.3600 to 1.3665 so far today. Short term support lies at 1.3283, 1.3268 and then 1.3247 from May 6, 2009, followed by 1.3213 from two days before that, while resistance is at 1.3692, 1.3818 from March 17 followed by 1.3839 from February 9.

Euro Bounces on Details of Greek Lending Facility

The euro is finding some support on Monday after European leaders reached an agreement over the size of the Greek emergency lending facility.

Eurogroup President Jean-Claude Juncker told reporters in Brussels on Sunday that euro zone finance ministers have agreed to provide Greece with up to €30 billion this year in bilateral standby loans if necessary, adding that the loans contain “no element of subsidy”.

Meanwhile, EU Economic Commissioner Olli Rehn said that the Greek loans would be fixed according to an IMF formula and would be at a rate of approximately 5%. He added that the program will be activated “when needed”, and that the loans will be covered by the EU and IMF at a 2:1 ratio.

Reacting to the news on Monday, ECB President Jean-Claude Trichet said that decisions being reached over the Greek emergency lending facility are “positive”, and that he expects all parties involved to keep up their responsibilities, including Greece, on reducing its budget deficit.

Meanwhile, EU spokesperson Amadeu Altafaj affirmed that the interest rates set on a lending facility for Greece will be set independently by the EU and IMF, and may differ between both organizations. Nevertheless, the decision to active the lending facility will have to be made by the Eurogroup acting unanimously.

The comments continue to add credence to some of the gains in the euro seen this morning, however they are not surprising given the need for an appearance of confidence in this situation.

The key here could be the 5.0% interest rate being discussed, since up until recently, the markets were offering a rate of around 7.0% on Greece bonds. This could be viewed as a subsidy by some euro zone nation, a move which would constitute a violation of EU law.

Nevertheless, EUR/USD last traded higher by 85 pips at 1.3585 after trading in a range of 1.3492 to 1.3692 so far today.

Short term support lies at 1.3283, 1.3268 and then 1.3247 from May 6, 2009, followed by 1.3213 from two days before that, while resistance is at 1.3818 from March 17 followed by 1.3839 from February 9.