Markets Focus on Libya

23.02.2011

An uneasy calm descended over FX markets during the Asia session, and risk currencies managed to hold their ground despite continuing concerns about Libya while the euro remains supported on expectations of a hawkish ECB press conference next week. The Euro was supported by hawkish comments from the ECB’s Mersch. While his tone was not particularly surprising, comments indicating the possibility of hiking rates with temporary liquidity measures still in place and the specific mention of the March 3 ECB meeting boosted the Euro.

S&P later cautioned that Spain still has significant downside risks to its AA credit rating and could face further problems in obtaining financing in the markets. S&P also said Spain has not done enough to “radically overhaul it’s labor market. ” S&P has the lowest rating on Spain among the three major ratings agencies but the euro nevertheless managed to hold on to some of its earlier gains.

Today’s focus will be on the BoE MPC minutes from the Feb 10 meeting. The minutes are expected to show that debates on whether the bank should start to exit the stimulus problem heat up as inflation jumped.