Risk sentiment at the open was buoyed by overnight reports that European leaders are mulling the buying of Euroarea bonds to reduce borrowing costs for continental governments, using the EFSF/ESM funds. However, as the session progressed through the European morning, comments from the EU have garnered attention saying that there have been no discussions at the G20 about the use of the EFSF/ESM for bond purchases, pressing EUR/USD lower. Despite this, Spanish 10-yr government yields have managed to break below the 7.00% mark for much of the session, trading at 6.92% at the Europe-North American crossover.
The release of the minutes of the BoE’s June meeting provided a surprisingly dovish vote for further QE, with the governor King opting to expand asset purchases this month, although a slight majority voted against an extension; 5-4. With the minutes proving to be more dovish than expected, GBP/USD did significantly weaken for a very brief period, coinciding with a 30 tick spike in Gilt futures, however the moves were very rapidly pared to pre-announcement levels. The minutes have swayed more institutions to opt for further QE at their July meeting, with RBS now revising their forecasts.
The BoE’s inaugural ECTR auction came and went with little focus, as the Bank allotted the full GBP 5bln, although a very brief 3-tick spike in Sep’12 short sterling futures was observed.
Looking ahead in the session, participants look forward to Bernanke and the FOMC releasing their latest rate decision and forecasts.
Print 10:47, 20 Jun 2012 - Market Analysis - Source: RANsquawk
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