The Euro and the Pound Sterling are both under pressure as investors speculate that the European Central Bank and the Bank of England will take up a more accommodative stance later today.
The consensus of a recent poll of analysts suggests that the ECB will announce a rate cut of 25 basis points, though a smaller percentage is forecasting a reduction of 50 basis points. Markets will also scrutinize Mario Draghi’s press conference which is held not long after the announcement to determine whether another LTRO (long term refinancing operation) might be in the offing; the proceeds of previous LTRO schemes have helped to cap sovereign bond yields, and markets remain concerned over the rising yields for Spanish and Italian debt. The EUR/USD pair lost nearly 0.7% on Wednesday during light traffic as a result of the U.S. holiday. The Euro held close to a 1-week low against the U.S. Dollar in Asian trading, dropping to $1.2526;.and immediate support can be seen at around $1.2495.
The Bank of England has little room for interest rate movement but is expected to announce an increase in its asset purchases program to counter the effects of the Eurozone debt crisis. The GBP/USD had been trading lower at $1.5586, and has lost nearly 100 pips from last Friday’s high.