Sterling could be in a bit of trouble this morning as the Bank of England minutes are released at 9:30. Recent data out of the UK has been poor and a dovish tone in today’s minutes could set the mood for today’s trading and put Sterling under pressure. In recent weeks we’ve commented on how Sterling has been a little bit too reliant on other currencies weakening to gain ground so another bout of negative sentiment this morning could well send Sterling drifting lower over the course of the day.
A little bit of positivity came out of the US yesterday after US President Barack Obama endorsed a plan that is aiming to cut the US trade deficit by $3.7 trillion over the next ten years. This sort of news should inspire some confidence in the markets as it looks like the world’s largest economy is getting its house in order. I suppose that it also depends on just how big it grows in the interim as to how significant this sort of reduction will be.
Despite the Euros recent rally there could still be substantial pressure around the corner. Bond spreads are still widening as we saw yesterday with the Spanish bond auction. This widening of bond spreads looks set to continue as European assets become ever riskier, and although the likelihood of one country defaulting looks less likely as Europe seems to have adopted a no fail policy. The question we are asking ourselves is just how deep are the pockets that are going to have to fund this rising debt mountain?
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