In US trade, the euro strengthened against the dollar, surging above the 1.2550 level on the back of some supportive words from EU President Herman Van Rompuy for the ECB’s bond purchase plan.
While the finer details of the plan have yet to be finalised, Mr Van Rompuy said he 'fully' endorsed the ECB's proposal for bond buying and expressed confidence that the plan, if and when used, would be ’very effective‘. Unfortunately for the market, there was no indication from Mr Van Rompuy or the Spanish Prime Minister Mariano Rajoy, that a request from Spain for more EU aid is imminent.
Mr Rajoy did however confirm that there are 'no ongoing talks' on a Spanish bailout and added that Spanish banks will need less than the €100 billion of aid already sanctioned by the EU. Spanish 10-year yields rose 10 basis points (bp), while two-year yields dropped 7 bp. Mr Van Rompuy’s endorsement of the ECB’s probable bond purchase programme also overshadowed the final estimate of Spain's Q2 GDP release which revealed the economy contracted by 1.3% year-on-year against an earlier estimate of -1.0%. In other news, it was announced that ECB President Mario Draghi would be withdrawing from his scheduled speech at Jackson Hole this weekend due to his heavy work commitments. US economic data was again concerning with the latest consumer confidence reading of 60.6 coming in at its lowest level since November 2011 and well below the consensus estimate of 66.
This contributed to modest USD weakness as the pendulum again swung in the favour of more quantitative easing from the Fed. The resulting impact was a firmer night for most of the suite of risk currencies. Not only did the euro rally from 1.2495 into the 1.2560s, the pound reclaimed the 1.58 level, moving from 1.5790 into the 1.5820s by the close of the US session. In early Asian trade, both the euro and the pound are fractionally off their US session closing levels. Tonight’s revised US Q2 GDP print (which is expected to move from 1.5% to 1.7%) shapes as the most immediate directional catalyst for the dollar crosses, and will no doubt further shape the Fed’s ongoing QE debate.