Daily Market Report 10/12/12

Monti’s planned resignation casts doubt over Italy’s future

Following the euro’s previous strength, last week the shared currency had a sharp correction as Draghi’s press conference downgraded the region’s economic forecasts and illuminated the hopes of a future rate cut.

Sending the euro crashing more than one percent, the prior bullish attitude quickly evapourated. Despite keeping the interest rates the same at 0.75%, Draghi reported that the decision to do so had split the camp, with half wanting a rate cut to 0.5%. This revelation suggests that the euro zone could be primed for a future cut, causing investors to leave the currency.

The dollar was a main beneficiary, compounded by the claims from Republican House Speaker, John Boehner, that Obama had wasted another week as the country looks to find a solution to the fiscal cliff.

Major news coming from Italy has seen Prime Minister Mario Monti announce his resignation once his 2013 budget has been passed. Having been heavily criticised for his pro-austerity stance in combatting Italy’s problems, Monti will ensure his budget is successful before bowing out. Worries that the next leader, potentially Silvio Berlusconi, would be anti-austerity would have caused euro weakness already this morning.

Following this news, expected dollar strength has been dampened by the belief that the Fed, meeting later this week, could announce a further round of quantitative easing to help boost the economy.

Today’s Key Announcements:

  • 07.00am – EUR – German Trade Balance: 15.2bn
  • 07.45am – EUR – French Industrial Production m/m: down at -0.7%
  • 09.00am – EUR – Italian Industrial Production m/m: down at -1.1%
  • 09.30am – EUR – Sentix Investor Confidence: expected at -16.2
  • 1715pm – GBP – BOE Gov King Speaks

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