Markets will remain firmly focused on events in Europe following yesterday’s confidence vote in Greece. The government won the vote, opening the door to a modest bounce in the euro, with the USD/EUR rate trading around the $1.44 level. However, the government now faces the arduous task of trying to pass an austerity plan (a five year, €28 billion package of tax increases and spending cuts, as well as plans for asset sales) that will secure further funding from the EU/IMF. Thus, upside in the euro could be limited for now, with indeed some element of profit taking on recent gains coming into play in early morning trade.

Meanwhile, receiving less than the usual amount of attention, the Fed makes a policy statement at the slightly earlier than usual time of 17.30pm (Irish time). No policy changes are anticipated but markets will be paying close attention to the tone of comments at Bernanke’s post meeting press conference (19.15pm), particularly in light of recent disappointing US data. Despite some talk in the market about the possibility of QE3, we think it’s unlikely there will be any reference to moves to fresh initiatives aimed at boosting output. Nonetheless, any hints of a more downbeat view of the economy could provide some support for the euro.

Sterling came under pressure versus the dollar and euro early yesterday following comments from the BoE’s Fisher that further quantitative easing remained very much on the table as a policy option. The dovish tone to the comments took markets by surprise, overshadowing some better than expected public finance data for May. Today sees the release of the minutes of the last BoE policy meeting, which will be important in terms of setting the tone for the GBP over the coming weeks.