The dollar has been steadily recouping some ground overnight in particular against the Yen as USDJPY gets itself back to the 102.75 level and could have the impetus behind it to test 103.00 again, not seen since January. The normalisation of markets since the beginning of the week has been stark so today investors can focus on one of the major risk events that traders have been building up to for quite some time now and that’s the ECB meeting later today. Safe to say the BOE meeting is not considered such a risk so the focus will be on the Euro rather than sterling.
The turnaround in sentiment towards the Eurozone has caught the majority by surprise. A year ago few would have thought that the yields on 10 year bonds for Portugal would today be below 5%, Spain below 4% and Italy less than 3.5%. Italy is a case in point as yesterday it saw its services PMI jump from 49.4 to back above the 50.0 to 52.9 indicating expansion and the data for the Eurozone as a whole was higher than expected. So as sentiment has improved the single currency has remained well supported despite many in the market thinking that today it is time for the ECB to ease further. But the most recent data would suggest otherwise, with last week’s flash CPI number coming in higher than expected, a key measure for the ECB, so little or no action could lead to a volatile period immediately following the decision at 12.45 GMT. All eyes will be on the refi rate to see if that’s cut, but any impact of such a move is likely to be very limited and so the likelihood of a refi rate reduction is slim.