Market Review - 28/08/2012 21:15 All times in GMT

Euro rallies on hopes of ECB bond-buying and Fed's QE3

The single currency rallied against the greenback on Tuesday, buoyed by hopes of bond-buying by the ECB to contain the eurozone debt crisis and expectations of further monetary easing by the Fed as Bernanke takes centre stage in Jackson Hole this Friday.

Earlier in Asia, although the single currency fell to session low at 1.2466 in Asia due to market rumour that Fed's Chairman Ben Bernanke would not hint at QE3 at the central banks' conference in Jackson Hole, Wyoming, price later pared intra-day losses and rallied to 1.2562 in European morning, due partly to good demand at Italian and Spanish auctions. Despite a brief pullback to 1.2535, euro climbed to session high at 1.2577 in New York morning on hopes of bond-buying by the ECB and expectations of further easing from the Federal Reserve.

Italy sold 3.0 bln euros of 2-year zero-coupon bonds with yield at 3.06%, the lowest since March whilst Spain sold a total of 3.61 bln euros in treasury bills.

The British pound tracked euro's intra-day movements and dropped to session low at 1.5754 in early Asian session before staging a rebound to 1.5794 ahead of European open. Cable later rallied to session high at 1.5836 in New York morning in tandem with euro before stabilising. The British pound weakened against the single currency, eur/gbp rallied to a fresh 3-week high of 0.7954 as investors bought the euro to meet month-end commitments, whilst gbp/jpy also rose fm 123.72 to 124.39 in NY b4 easing.

Versus the Japanese yen, the greenback rebounded from Asian morning low of 78.49 to 78.70 in European morning. However, dollar pared intra-day gains and dropped to session low at 78.46 in New York afternoon, pressured by expectations of further monetary easing from the Fed.

In other news, European Council President Herman Van Rompuy said 'EU ready to act rapidly to aid Spain's banking sector; advancing in European banking union is particularly urgent; it is up to Spain to decide whether to ask for additional aid; the ECB as laid out a clear framework n if it is used it will be very effective.' Spain's PM Mariano Rajoy added 'need European banking union by December with deposit guarantee fund; Greek exit fm the euro wud be a failure for Europe; no negotiation with ECB over aid; Catalonia does not have liquidity to meet debt payments, that's why asked for aid.'

On the data front, U.S. Conference Board consumer confidence dropped its lowest level in 9 months at 60.6 from 65.4 previously. Richmond Fed manufacturing index came in at -9 vs forecast of -10.

Data to be released on Wednesday:

U.K. house prices, Swiss KOF indicator, Germany CPI preliminary, HICP preliminary, U.S. GDP, pending home sales, Fed beige book and Canada PPI.