07 February 2013: Markets attention on Draghi and ECB

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Growth prospect for the euro zone is in the focus of investor’s interest when European Central Bank (RCB) President Mario Draghi meets with ECB colleagues in Brussels today. The policy meeting comes amidst optimism that the worst for the euro zone might be over. Public tiredness over harsh austerity measures and political turmoil in Spain and Italy, however, gloom in the background. Asian and American markets as well as EURO/USD took a pause waiting for ECB’s directions.

Growing optimism that the euro zone economy may be near a bottom has propelled the euro to a 14-half-month against the dollar and a 34 month peak against the Japanese Yen. Euro/USD is trading at 1.3520. Against British sterling, GBP, the Euro has also gained substantially and stands at a 15 month high. ECB is expected to keep interest rates at a record low 3,75%. Traders will focus on comments on the Euro’s strength and outlook for the euro zone economy.

Draghi’s strong verbal commitment to defend the Euro last autumn proved decisive for the Euro. The ECB’s bond buying scheme has further helped erase the funding strains on highly indebted euro zone members. The bond buying has strongly reduced the risks of the region’s crumbling debt. A corruption scandal in Spain and uncertainty over the outcome of the Italian elections has, however, brought focus back on the region’s political instability.

Crude oil and gold prices have been trading up the last hours. Brent is again sniffing at USD 117 a barrel. Gold is at 1680. USD/JPY trades at 93.45 after reaching 94,075 on Wednesday. In US the attention on budget cuts are back in the headlines. It is indicated that if automatic government spending cuts are kept in place only for a month or two, this may have a serious negative impact on the US economy and possibly trigger a brief recession. 

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