Portugal Bonds Auction in Focus

The risk of Portugal following the lead of Greece and Ireland has been the cause of much speculation for the last week, with today being the day when they will likely decide whether to follow the lead of other nations and approach the EU and IMF and ask for a bail-out.

Portugal will go to the markets for up to €1.25 billion with a sale of four and 10 year bonds. The auction will be closely watched as an indication of investor confidence, as markets see how easily, or not the debt hit nation can raise funds.

There has been plenty of speculation that Portugal could join Greece and the Irish Republic in needing an international bail-out, something it has denied. The mear threat of this has been the driving force behind the mass euro weakness that we have seen since the beginning of the year and traders are eagerly awaiting today’s news to see what direction the euro market takes.

This could of course benefit any Sterling sellers who are looking to take advantage of some prices that have not been available since the summer last year. And we will have more on this as we get it.

Yesterday saw the pound rally across the board, despite some disappointing retial sales figures that posted a decline in sales in the month of December, attributed mainly to the poor weather over the Christmas period and the concerns of consumers regarding the increase of VAT.

The dollar was down against sterling by 0.2% on the day to $1.5649 with stop orders cited above the $1.5660 and $1.57 which will signal a reversal in the market and may suggest rates will head for the September high of $1.60+.

The euro debt crisis has dominated the market news of late and will continue to do so. But the euro has found support after Japan said that it will purchase wuro zone bonds to bolster confidence in the European Financial Stability Facility, but in yesterday’s volatile session momentum faded after Tokyo said it would use existing euro reserves to pay for the debt.

Tokyo's pledge came after China assured Spain it would invest in the indebted euro zone state's bonds -- an assurance whose impact also proved fleeting.

Italy and Spain are due to tap the bond market on Thursday, in auctions that will be watched for any sign of contagion, and possibly test the resolve of the Asian’s apparent support.

The dollar yesterday rose by 0.6% to 83.22 versus the Yen as recent optimism about the US economy helped lift bond yields.

The Swiss franc extended Monday’s sell-off amid growing concern about the impact of the record strong franc on the domestic economy.