It was a bit of a non-day on FX markets yesterday with prices staying in their recent ranges. News-flow was also a lot less than previous sessions and that allowed traders to not feel they needed their feet to the floor at all times. Still there was some stuff to talk about.

Slovakia’s parliament approved the expansion of the EFSF powers yesterday afternoon.  The head of the facility later states that the facility can now become fully activated. He also stated, and this was met with a fair bit of incredulity, that “any decision to use its capacity more efficiently through leveraging will not have an effect on its triple-A rating. Well, it will. He was also confident that the EU leaders will “have enough substance to respond to what the market needs” at the Oct. 23 meeting.

Further good news came for the Eurozone came as  Italy sold EUR6.19bn in bonds on Thursday at a yield of 5.32%, down from 5.60% at a similar auction on Sept. 13 and after a sovereign debt downgrade. The bid to cover ratio was slightly stronger at 1.34 vs. 1.28 previously. The Italian stock market however got absolutely crunched yesterday as traders marked down assets ahead of a confidence vote in Berlusconi due today.

Negative news came in the form of Standard and Poor’s downgrading Spain’s credit rating in line with the downgrade by Fitch last week. Similar reasons were given as well such as low growth and high debt. Fitch followed Moody’s yesterday and cut ratings on 15 EU banks including Lloyds and RBS here in the UK, with Barclays put on a negative watch.

Alongside that confidence vote on the Italian administration we have a G20 finance ministers and central bankers. Topics of conversation are going to be bank recapitalisation, how to deal with Greece and what firewalls can be put into place to limit contagion to other periphery economies, and what form the newly ratified EFSF should have. The euro may benefit from inflation figures due at 10am with the preliminary number showing the highest level since late 2008.

We also have US September retail sales that are expected to be rise by 0.7% versus no increase the month before.

Good luck and have a good weekend.

What the future holds for sterling – Free Seminar

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Latest exchange rates at time of writing