All eyes are on the ECB and the BoE on Thursday as both central banks will hold their monetary policy meetings today and both are expected to modify their monetary policies.
The majority of analysts polled for the Central Banks Forecast Report suggest that the ECB will cut its refi rate by 25 basis points to 0.75%, which will most probably boost the euro. The central bank might also lower the deposit rate by 10 basis points to 0.15%.
The BoE on the other hand is supposed to leave rates unchanged, as the experts believe, but it will most probably expand its assert purchase program by at least 50 billion pounds, which might result in a slide of the GBP.
Crucial EU debt auctions
Spain held a bond auction in the European morning selling 3 billion euros worth of bonds out of the 2.5-3.5 billion euro target. The average yield on 10-year bonds was at 6.43%, up from the 6.04% seen on June 7.
It was the first 10-year debt auction held after the EU granted Spain funds for the direct recapitalization of its ailing banks. The Spanish risk premium has risen above 500 points again in the European morning and remained elevated after the sale.
Ireland will return to the bond markets on Thursday and auction its debt for the first time since September 2010, when it received EU bailout. The country plans to sell 500 million euros of 3-month bonds today.
Also France will auction debt on Thursday, offering 7-8 billion euros worth of bonds maturing in October 2019, April 2022 and October 2023.
BoE's Tucker might have meddled in LIBOR scandal
The scandal caused by UK Barclay's bank fixing the LIBOR rate dominates headlines on Wednesday, as new information is coming to light i.e. the possible involvement of BoE members in the swindle. Markets are also awaiting ECB and BoE's monetary policy decisions, which will be announced on Thursday. The general expectation is of a rate cut in the first case and an expansion of QE in the second.
While Barclay's CEO Bob Diamond, who resigned from his position this week, was being questioned in the British Parliament, the GBP continued its plunge on Wednesday. The sterling was rapidly losing ground against its American counterpart, actually threatening the key support at 1.5600. As the scandal expands in ever-widening circles, Catherine Boyle from CNBC suggests that “the rapidly developing row over manipulation of inter-bank lending rates is turning into a battle over the future of banks around the world.”
France releases revised budget
In France, the new socialist government has announced its revised budget for 2012 on Wednesday. It includes tax raises which will generate additional 7.2 billion euros. This way Paris plans to reach a balanced budget by 2017.
The new taxes will be imposed mainly on the most wealthy citizens as well as on banks and oil firms. President Francois Hollande aims at lowering the public deficit to 4.5% GDP this year from last year's 5.2%.