After reaching highs of $1.3833 versus the dollar yesterday, the euro dipped in early morning trade but remains well supported by the current wave of positive sentiment towards riskier assets. Despite its early morning consolidation, further gains could be seen near term, with the overnight news of a better than expected Australian jobs report for September also boosting sentiment. European bank stocks rallied yesterday as investors hope that Europe was moving close to a new round of recapitalizations. EU Commission President Jose Manuel Barroso told the EU parliament that the region “must urgently strengthen the banks.” There must be coordinated efforts to recapitalise banks through private and state injections, provision of full transparency on the sovereign debt exposures at all systemically important banks and proposed the introduction of temporary, higher capital requirements after accounting for those government bond holdings. Banks falling short on capital under the measures should be barred by regulators from paying dividends or employee bonuses. These proposals will be taken to the October 23 meting of EU finance minister.

Meanwhile, Slovakia looks set for another parliamentary vote on the enhanced EFSF. The last of 17 euro zone countries to do so, it looks as if the political parties have reached agreement to allow for approval of the upgrade of the rescue fund. Despite a weaker than anticipated UK unemployment report for September, sterling saw four week highs versus the dollar yesterday, though this was mainly a reflection of improved global sentiment rather than any positive fundamentals. UK trade data for August due for release this morning are not expected to be sterling supportive.