With the rate decisions out from central banks in Europe today, the BoE and the ECB both left their monetary policy unchanged as expected and now the focus shifts to Trichet and whether he will signal a rate hike to sustain the rally or will send the dollar raging higher.
The bets on Trichet to signal a rate hike in July in the press conference today has dominated the sentiment and shifted the focus from the rising uncertainties and problems to rate differentials and accordingly kept the dollar's gains at bay.
Greenback continued to trade bearishly today with the dollar index losing more grounds. The index is currently trading around 73.81 recording the high of 73.93 and the low of 73.68.
We have now the weekly jobs numbers from the U.S. and the claims are expected to have slowed last week yet still above the marginal 400 thousand, reflecting the ongoing weakness in the economy.
Bernanke earlier this way confirmed that the recovery is slow and that they will keep the monetary stimulus to restore the recovery momentum, he refrained from a clear signal on a third round of quantitative easing which is what offset heavy losses for the dollar, yet still rates are low and the ECB is expect on the other end and that is why the dollar holds its weakness unless Trichet signals otherwise.
The Bank of England as widely expected, the Bank of England's Monetary Policy Committee voted today to maintain the official Bank Rate on commercial bank reserves at 0.5%. They also opted to maintain the asset purchase facility financed by the issuance of central bank reserves at £200 billion.
Investors have expected the bank to keep the monetary policy unchanged yet some still were cautious of a surprise move. The details of the meeting will be presented in the minutes of the meeting on Wednesday June 22, 2011.
The narrowing trade deficit by more than expectations was also some marginal support for sterling, yet mainly it was the weak dollar. The pair is trading bullishly now around 1.6425 recording the high of 1.6465 and the low of 1.6387.
For the euro, the currency ignored the debt woes and the mounting differences among the EU nations over the next step for Greece, where the bets for Trichet to signal a rate hike in July is dominating the scene.
German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble briefed lawmakers yesterday from their Christian Democratic bloc and Free Democratic coalition in Berlin and they initially are behind the Chancellor for a second bailout for Greece yet on strict terms and for investors to share a substantial amount of the bailout.
This is a major stance that we will focus on today in the press conference yet will not overshadow the phrase strong vigilance that investors are looking for to confirm next month's rate hike after the ECB left rates today at 1.25%.
The EUR/USD moved to the high of 1.4646 and now returned lower at 1.4610 but still bullish ahead of Trichet. The pair recorded the early low of 1.4571 and shall Trichet refrain from signaling the rate hike for July and replace the phrase with closely monitor the euro is to move strongly lower and a breach of 1.4560 will extend the bearishness, and if he does say strong vigilance we see the euro moving towards 1.48 areas for now.