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Euro Threatened By Greek Fears- Sterling Outlook Reinforced By BoE

By , Currency Analyst
12 October 2012 13:05 GMT

Talking Points

  • Euro: EU Sees ‘Fiscal Risk-Sharing,’ Moody’s Warns Of Greek Exit
  • British Pound: BoE’s Tucker Raises U.K. Outlook, Policy Minutes On Horizon
  • U.S. Dollar: Consumer Confidence To Falter, Fed’s Lacker In Focus

Euro: EU Sees ‘Fiscal Risk-Sharing,’ Moody’s Warns Of Greek Exit

The Euro climbed to 1.2987 as EU President Herman Van Rompuy floated the idea of ‘fiscal risk-sharing’ across the monetary union, but the relief rally in the EURUSD may come under pressure amid the heightening threat for a euro-area breakup.

Moody’s Investor Services warned that there’s a one in three chance that Greece will exit the monetary union as the government struggles to secure its next bailout payment, while European Central Bank board member Joerg Asmussen argued that giving the periphery country more time to meet its budget target will require ‘additional external financing’ as there are still ‘elements missing to conclude the budget for 2013.

As the debt crisis continues to dampen the fundamental outlook for the region, Governing Council member Ewald Nowotny said the governments operating under the single currency should consider the implications laid out by the International Monetary Fund’s Stability report, and we may see the ECB show a greater willingness to lower the benchmark interest rate further as the region faces a deepening recession.

As the EURUSD maintains the range from earlier this month, we should see the pair continue track sideways over the coming days, but the single currency may struggle to hold above the 200-Day SMA (1.2822) should the economic developments on tap for the following week highlight a weakening outlook for the euro-area.

British Pound: BoE’s Tucker Raises U.K. Outlook, Policy Minutes On Horizon

The British Pound advanced to 1.6091 as the Bank of England raised its outlook for the U.K. and the policy statement on tap for the following week may heighten the bullish sentiment surrounding the sterling should the central bank continue to soften its dovish tone for monetary policy.

Indeed, BoE board member Paul Tucker said he’s ‘pleasantly surprised’ by the Funding for Lending scheme amid the ‘fall in funding costs,’ and we may see a growing number of central bank officials strike a more hawkish tone for monetary policy as the economy appears to be emerging from the double-dip recession.

As the economy gets on a more sustainable path, the BoE Minutes may curb speculation for additional monetary support, and we may see the central bank scale back its forecast for undershooting the 2% target for inflation amid the stickiness in price growth.

As the relative strength index on the GBPUSD continues to come off of interim support (43), the rebound from 1.5975 should gather pace over the near-term, and the British Pound looks poised to make another run at the 1.6300 figure as the Monetary Policy Committee slowly moves away from its easing cycle.

U.S. Dollar: Consumer Confidence To Falter, Fed’s Lacker In Focus

The greenback remains under pressure on Friday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to a low of 9,891, and the reserve currency may weaken further during the North American trade as the economic docket is expected to dampen the outlook for the world’s largest economy.

U.S. consumer confidence is expected to taper off in October and a marked decline in the U. of Michigan survey may spark a selloff in the greenback as it fuels speculation for additional monetary support. However, as Fed hawk Jeffery Lacker is scheduled to speak later today, the lone dissenter on the FOMC may continue to speak out against the open-ended asset purchase program, and the board member may curb bets for a further expansion in the central banks’ balance sheet as the economic recovery gradually gathers pace.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

13:55

9:55

U. of Michigan Confidence (OCT P)

78.0

78.3

USD

16:35

12:35

Fed's Jeffrey Lacker Speaks on U.S. Economy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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12 October 2012 13:05 GMT