Ireland calls for referendum on EU fiscal treaty as market focuses on LTRO

Tom Tong29/Φεβ/2012Currency Updates


Yesterday Sterling traded close to its 3 month high versus the dollar ahead of an injection of funds by the ECB that is expected to boost appetite for riskier currencies. As well as this, the announcement that Ireland will hold a referendum on the EU fiscal treaty saw sterling rise to new levels against the Greenback.

The movement in Sterling was largely driven by events elsewhere, although sentiment was helped by a survey showing British retail sales improved more than expected in February, adding to signs of a tentative UK recovery.

Today – all attention will be on the LTRO, the ECB’s longer term refinancing operation, and as such sterling is not the catalyst for moves but rather being dragged around by other currencies. The ECB’s fresh injection of 3-year money is expected to bolster demand for the euro and other currencies perceived to be risky, including sterling.

But investors are still being mindful of risks ahead that could knock sentiment. The Irish announcement highlighted the obstacles facing the Eurozone as they seek to reach a political consensus on any solution to the region’s debt crisis. Also, the possibility of the Bank of England opting for another round of quantitative easing may limit gains for sterling.

Finally, today the BoE will be releasing its quarterly inflation report.


Yesterday the Euro rebounded from the previous day’s losses, ahead to a fresh injection of liquidity from the ECB. It rose 0.4% against the Dollar as oil prices slipped and some risk appetite returned. Alongside this, the Euro was supported by a successful Italian debt auction.

Ireland will hold a referendum on the European Union’s new fiscal treaty. This will be the first popular vote on the German-led plan for stricter budget discipline. Support for the EU has cooled in Ireland after its financial crisis, meaning there is no guarantee a vote will succeed. Irish voters rejected the last two European referendums, most recently in 2008, before passing a 2010 bailout package. A rejection would damage long-term funding prospects for Ireland and cast doubt on its commitment to the single currency.

Today, the European Central Bank prepares to distribute unlimited three-year funds among European banks. It is hoped that this second round of LTRO will be taken up by banks in the Eurozone and provide liquidity and prevent the crisis to spin further out of control.


The dollar fell yesterday against most of its major counterparts, highlighted by the 0.4% decline against the Euro, due to the Euro’s support ahead of the final ECB LTRO. Many are hoping for a similar result as seen in December where banks demanded almost €500 billion.

For the Dollar today, preliminary GDP figures are due and Ben Bernanke will deliver his semi-annual monetary policy report. As always, remarks regarding further quantitative easing measures will be at the forefront with any hints towards further easing likely to boost risk appetite at the expense of the dollar. The next 24 hours remain crucial for the dollar with the LTRO in Europe presenting the most significant event risk for broader risk sentiment.


Written by Tom Tong

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