• Spain PM Zapatero: Govt to cut 13,000 civil service jobs in 2010. Civil service salaries to be cut 5% in 2010, freeze in 2011
  • Spain union leader says rejects govt cuts. Does not rule out any type of action
  • Portugal FinMin – Measures focus on spending cuts, if not enough government may take steps to up revenue. Confident on understanding with main opposition party on new measures. April budget execution data will show fiscal revenue growing significantly
  • Portugal Treasury Sec: Expects lower financing needs with deeper budget deficit cuts
  • Greek/German 10-year government bond yield spread at 465 bps, narrowest in 3 weeks
  • Greek public and private sector unions to hold 24 hour strike on May 19
  • ECB’s Quaden; Euro currency will survive the current crisis. Greece has no option than to accept austerity measures. Public finance problems of Spain, Portugal not as severe as Greece – magazine interview
  • ECB’s Stark: We will keep state bonds until end of maturity. There was no political influence in ECB decision, would have rejected idea if there had been
  • ECB’s Trichet: We are taking appropriate decisions in face of current crisis. We are not running the money printing machines
  • UK April claimant count -27,100, better than median forecast -20,000
  • Euro zone Q1 GDP +0.2% q/q, +0.5% y/y, as expected
  • Euro zone March industrial output +1.3% m/m, +6.9% y/y, stronger than expected +1.0%, +6.1%
  • BOE inflation report: Pace of recovery uncertain due to QE/fx impact, euro zone demand, fiscal tightening. Near-term downside GDP risks up somewhat due to concern about countrie’s budget deficits
  • BOE’s King: Financial crisis is far from over. Banking crisis has turned into potential sovereign debt crisis. Imperative UK fiscal problems are dealt with sooner rather than later

Busy morning. EUR/USD started around 1.2630 and rallied early, buying said to be partly related to Germany’s 2-year 7 bln euros bond auction and Portuguese 10-year auction. General risk appetite then picked up and the EUR/USD rally accelerated when details of Spanish measures to address their budget deficit hit the wires.

We got to session high 1.2739 in double quick time. Then sources reported BIS selling aggressively around highs and the bank from Basle continued selling at various levels on the way down. We were still getting reports of them selling below 1.2700. Makes you wonder what, or for whom, the selling was for. Eastern European names were also notable sellers. Didn’t get any reports of ACB selling, although BIS might have been doing the selling for ACB’s, or maybe they were in and we just didn’t hear about it. I’d be surprised if China wasn’t in their selling around, or close to, the highs. We’re presently back at 1.2680.

Cable started around 1.4870. London traders arrived at their desks and settled down to the task of lifting sterling in the wake of a new government being formed. Large hedge fund seen notable buyer early. Stops tripped through 1.5010 and 1.5030 on way to session high 1.5044. Stops noted through 1.5050 but were never reached.

Strong profit-taking set in, no doubt prompted by knowledge the BOE inflation report was due and then a Merve the Swerve press conference. Old Lady and Mr King have a habit of underminning sterling and they didn’t disappoint. The pairing sat around 1.4990 just before release of report/press conference and slumped quickly towards 1.4900 as contents of both hit the wires.

ACB noted buyer around lows and we’ve seen partial recovery, presently at 1.4935.