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Tuesday, August 7, 2012

ECB expectations spark global rally in risky assets

The Euro has pulled back from a 1 month high, while  Aussie hits 4 month high. Yen stays stronger ahead  of BOJ Meeting.
Earlier today the Euro slid slightly versus the  Dollar and pulled back off of a one month high. It  remained supported by expectations that the  European Central Bank (ECB) will soon take action  to lower borrowing costs for both Spain and Italy.  These expectations have sparked a global rally in  risky assets since Friday and have given a boost to  the Euro and the Aussie.

  It seems likely that the Euro will make further gains  in the near term on hopes for such action, although  exact details of how the ECB will stabilise the Euro  zone's bond markets have yet to be determined.

  The Euro was slightly down by 0.2% to $1.2380, having  hit a one month high of $1.2444 yesterday.
  Traders will now be anxiously watching to see if  Spain or Italy will decide to ask for assistance from  the Euro zone's bailout funds. Any such assistance could  then result in the ECB purchasing bonds through a new  scheme under consideration.

  The Reserve bank of Australia (RBA) has kept interest  rates unchanged at 3.5% and dropped few hints that it was  in a hurry to ease them again. The Aussie hit its highest  level in more than four months at $1.0603.

  The RBA has said that the Australian Dollar's exchange  rate still remains high despite a drop in the terms of  trade. It seems to me though, that there probably isn't  much that the RBA can do to oppose the strength in the  Aussie Dollar.

  The U.S. Dollar moved up 0.1% to 78.29 Yen, remaining  above a two month low of 77.90 Yen hit last week,  while the Japanese currency was at 96.99 per Euro  from 97.03 Yen.

  The Yen's strength follows a rally in equities worldwide  which has ignited speculation that the Bank of  Japan (BOJ) will refrain from additional monetary easing  at a policy meeting that starts on Wednesday.

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