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ECB Press Conference Expected To Stabilise Euro

Market CommentaryECB Press Conference Expected To Stabilise Euro

Could the nosedive in the value of the euro come to a conclusion today?

This afternoon the European Central Bank is to hold its December press conference, and ostensibly is set to announce the new EMU interest rates. In fact though the real issue is whether the ECB President Jean-Claude Trichet will announce an expansion of the bank’s programme of buying foreign government bonds (called the Securities Market Programme.)

The markets are hopeful that he will do so. If he does, and begins pre-emptively buying government bonds from insolvent EU nations such as Portugal and Spain, it provides a longer term solution to the European debt crisis. This could stabilise the euro and, on the back of this expectation, sentiment toward the common currency has improved in the last day.

Furthermore the euro has also benefited from US announcements that it intends to support the EMU. The US is the biggest shareholder in the International Monetary Fund meaning, in the event that Portugal or Spain request bailouts, they can expect support from the world’s biggest debtor.

The US announcement is of course self-interested: officials there hope to prevent the EU debt crisis from expanding worldwide by pumping funds into Europe. But the announcement also succeeded in improving optimism toward the euro.

Elsewhere, economics group Markit Economics yesterday reported the single biggest rise in UK Price Managers Index figures since 1994. On the back of increased exports and job creation the British PMI rose to 58.0 in November. This is positive news for the UK economy and suggests the recovery is on course.

However the close ties between sterling and the euro means this positive news did not affect the value of sterling for too long. In fact commentators expect that GBPUSD exchange rates in particular will be affected most by the ECB press conference this afternoon.

In the US meanwhile the last 24 hours have been light on economic data. This will change tomorrow with the release of non-farm payroll figures – revealing the number of new jobs created outside the agriculture sector. These are critical in determining the success of the US recovery and will be watched closely by the markets.

Stay tuned.

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