The approach of the ECB policy meeting today has limited upside potential for the EUR. No policy change is expected although further detail on the plan to buy covered bonds is expected. Given the appreciation of the EUR over the past month and softer Eurozone inflation data the risk is that the tone of the ECB will remain dovish, though signs of improvement in the economic backdrop will likely be acknowledged.
Once again the USD1.6400 level has prevented the pound from heading higher. The BOE meeting today is the prime focus. No rate change is expected but the market is eager to see if there is any further discussion on the progression of Q.E. The consensus opinion, however, is that there will be no expansion of its existing plans today. The release of the better than expected UK May Halifax house price index showing an unexpectedly rise of 2.6% m/m in house prices provided a lift for the pound. This good data follows yesterday's better services PMI data which encouraged forecasts that the UK economy could registered growth in Q3. EUR/GBP has moved back down to the 0.8650 area on the news. The increasing disruption within the government is not having a huge impact on sterling.
The JPY has been under pressure followed the publication overnight of data showing a significant rise in the amount of foreign bonds and stock bought by Japanese investors in the week to May 29. The JPY has weakened vs the USD, EUR, GBP and the AUD. The tone of the AUD has improved following yesterday's sell off, though AUD/USD shied away from testing the 0.8100 level earlier today, with AUD buyers nervous given the near 30% gain in AUD/USD since the Mar low.
The problems in Latvia and the pressure for devaluation have remained in the headlines today. The related selling pressure on the SEK, however, has ebbed with SEK buyers emerging in the EUR/SEK 10.90 area.
This afternoon, US initial claims and productivity data will be watched. No policy change is expected from the BoC meeting.
