US Dollar ($) / Euro (€) (USDEUR) is at 0.7733: It looks like this morning belongs to the euro as Spanish rumours have helped boost investor demand for the single currency at the expense of the dollar; UBS analyst Gareth Berry advises that he is bearish on the dollar's prospects against the euro.
Commenting on the EURUSD he says: Initial resistance is at 1.2978, a break above which would see momentum higher and trigger a move to 1.3072 ahead of 1.3172. Support lies at 1.2804.
The Spanish bailout issue has been weighing on the euro for weeks now and the markets have opened enthusiastically amid rumours that PM Rajoy is ready to cave into the pressure.
Luis de Guindos, Spain’s economy minister has triggered the move this morning by asserting that there is no political resistance from within the eurozone to a Spanish bailout request.
"Only time will tell as to when Rajoy will bite the bullet but this morning’s rumours look set to keep the euro well-supported today, so sterling is likely to remain under €1.24," notes Richard Driver at Caxton FX.
US Dollar ($) / British Pound Sterling (£) (USDGBP) is at 0.6238: The pound is merely a back-seat driver at present taking guidance from the larger interplays of the EUR/USD pairing.
"With stocks rebounding yesterday and the euro enjoying a significant bounce, there was much weaker demand for the dollar, which enabled sterling to pop up above the $1.60 level. The bounce was not aggressive enough to make us revise our expectations for a weaker GBP/USD pair though. We could see further short-term gains today though," notes Driver.
Meanwhile, Bank of America Merrill Lynch Global Research have said inflationary pressure may have eased in September, allowing the possibility of further sterling-negative quantitative easing in November:
"We estimate CPI inflation may have fallen back from 2.5% to 2.2% in September, while the BoE may have voted unanimously for no change to QE or interest rates at their October meeting."
This morning British Gas announced a price hike in their gas and electricity prices - this will surely feed through into inflation figures and could see inflation forecasts re-adjusted.