EUR - The euro was a weaker overnight as traders eye a very important meeting between European finance ministers, while the immediate pressure came from the Finland collateral issue. A solution to Finland's demands for collateral in order to participate in the second Greek bailout is unlikely to come today according to the Finland Finance Minister. This issue has been one of the pressure points on the Euro during the past few weeks, as it shows divisions within the European ranks.
The US Treasury Secretary Tim Geithner was on hand for the meeting between finance ministers in Poland. We saw the ECB take a step to try and preemptively provide liquidity to the market which helped boost the Euro in yesterday's trading session but that move only helps to attack the symptoms of the long-running crisis, and does not solve the underlying issues of sovereign debt worries, funding costs for troubled sovereigns, default risk for Greece, etc. Those problems may only be solved with a larger rescue mechanism or in the case of Greece an orderly default and exit from the euro zone.
If European leaders come out with a strong and clear signal, showing unity, then the euro may be able to extend its rally from this week. However if it's the same old, same old (implement the decisions of July 22nd and countries need to fix their fiscal positions) than the euro may lose some of its pop from the ECB announcement yesterday.
GBP- In the UK we had the Chancellor of the Exchequer George Osborne give a speech in which he said that time is short for finding the solutions the euro zone crisis and said that the UK is not immune from the problems that are currently on the UK's doorstep. Osborne called for a much better international response and he said he will be looking for European colleagues to send a clear signal that they truly recognize the gravity of the situation and that they're dealing with it. Osborne continues to maintain that the austerity package by the UK government should be held to steadfastly as excessive debt is the root cause of the worsening economic situation.
The pound meanwhile has been weaker for the previous four weeks against the US dollar as a result of heightened speculation that the Bank of England will undertake another round of quantitative easing in order to help a fragile recovery. But after dipping overnight we did see the Pound reclaim its highs for today session against the USD, giving us further attempt to create a bottom in the GBP/USD, as we remain mainly sideways in this week's trading.
The dip in the Pound came as a result of the Bank of England Deputy Governor Charles Bean saying that he will look again at the case for further asset purchases when the central bank meets next month. That goes to the heart of Pound's recent weakness which is the expectation of further quantitative easing.
AUD & NZD - The Australian and New Zealand dollars were stronger overnight against the US dollar as global equities managed to hold onto the gains we have seen this week, boosting risk appetite. Sentiment therefore remained in favor of the commodity linked higher yielders. The Aussie has been one of the weaker performers throughout the recent flareup in the euro zone sovereign debt situation. We currently test 1.0360 in the AUD/USD pair which is the highs we've had for this week and is a 38.2% retracement of the downswing we saw from mid-last week to the middle of this week.
Chief Market Analyst