Euro looks weak ahead of polls in Italy: StanChart

Minutes from Federal Reserve's meeting on Wednesday indicate that a number of senior officials remain concerned about the central bank's bond buying programme. The news led to a sell-off in the US stock markets, with all the major indices falling after the minute's release.

Sarah Hewin of Standard Chartered says that the quantitative easing (QE) by the central bank will continue at the current pace until the year ends. "The Federal Open Market Committee (FOMC) has rejected any idea of action to slow QE and thus there is a substantial improvement in the economy. So, they will remain pragmatic and will continue to follow the data that QE is here for atleast the coming months," says Hewin.

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With regards to euro-dollar trade, Hewin feels that there are risks from European perspective this week due to presidential election in Italy. The euro may look weak due to if Silvio Berlusconi wins the polls or may gain some support if the centre-left coalition wins the election. Below is the verbatim transcript of Sarah Hewin's interview on CNBC-TV18 Q: What have you made of the Fed minutes and is it giving you an impression that you will start to see the purchase of bonds tapering by 2013 itself?
A: Several Fed speakers had previously indicated there might be cause for bringing an end to QE sooner-than-expected and the minutes indeed confirmed that. 'Several' members called to vary the pace of QE based on the economic data, the minutes reflect the views of all Fed members not just the voters. We know that within the Fed you have a broad spectrum of views on the need or the usefulness of QE.
QE will continue at the current pace until the year ends. The core Federal Open Market Committee (FOMC) remains dovish. They have rejected any idea of action to slow QE and thus there is a substantial improvement in the economy. So, they will remain pragmatic. They will continue to follow the data that QE is here for atleast the coming months. Q: What is in it for a trader especially for the euro-dollar trader? Do you think that 1.30 or 1.31 is the floor? What is the trajectory in range for the euro-dollar?
A:  In the US, we have the upcoming sequestration and from March 1, there will be automatic spending cuts kicking in the States. There does not seem to be any agreement yet between the Congress and the White House on deriving a conclusion on the Budget. So, we have those risks in the United States (US).
We also have some risks in Europe. This weekend, we will have the Italian election. We will have the second round of the Cypriot presidential election. The Italian election was in the dark because there has been a blackout on opinion polls for the last couple of weeks.
At this point, it is difficult to know what the make up of the new Italian government is going to be. There is a chance that Silvio Berlusconi could come back again. It looks like less than a 50-50 chance, but nonetheless when we did have opinion polls – they were indicating that he could return. Now, that would be a shock to the markets and would be something which would take the euro weaker.
On the other hand, if we get a centre-left government coalition which includes Mario Monti and the previous Prime Minister, the technocrat prime minister, that might give the market cause for some relief and be euro supportive.