Euro Falls as Bond Auction looms

Good Morning.

The euro has been in focus over the weekend, as the single currency fell to a three-week low versus the dollar on Monday as investors turned cautious ahead of peripheral bond auctions in Spain and Italy this week.

The euro fee to $1.3472 against the dollar and tested €1.19 versus sterling, down 0.5% since the close on Friday.

News that German bank WestLB was hanging in the balance and a rescue plan was being formatted has also weighed on the euro.

Although finding some support in talk that the ECB will be ahead of the Fed in terms of hikeing interest rates, markets are still acautious of the single currency given the overhang of soverign debt concerns and uncertainty about the ECB’s successions plans now that Alex Weber is no longer running for the job of president of the central bank.

Following on from Friday sterling slipped versus the broadly strong dollar. This move was after buying of the dollar driven – or more off loading of the pound – as speculation of a UK interest rate rise stalled in the absebce of clarity from the central bank on when a hike might occur.

The Bank of England kept rates on hold at 0.5% on Thursday of course and although this decision was widely expected, it prompted selling in Ster,ling by some investors who had bet on a small possibility of a rate hike.

The BoE are not set to release any details of Thursday’s policy debate and voting until later this month, analysts said the market continues to lack clarity on how close the bank really is to raising rates as inflation pressures mount.

We will have more on the Euro bail-out as and when anything happens over the course of this week.