Disagreements in Brussels keep euro under spotlight

Tom Tong07/Dec/2010Currency Updates

GBP

Sterling edged up against the euro yesterday as European finance ministers held crisis debt talks in Brussels, but was down against the dollar as it clawed back Fridays’ losses. Sterling moved up against a broadly softer euro on Monday as investors focused on Eurozone debt problems ahead of a meeting of the 27-country European Union finance ministers. They are expected to formally approve an 85 billion euro aid package for Ireland and discuss the reform of EU budget rules. A survey released this morning showed that UK high street sales growth weakened last month as consumers remained concerned about prospects for their own jobs and personal finances. Also, UK new car sales fell for a fifth month in a row yesterday as consumers remain wary despite VAT rises in January. The important data release that could affect sterling today is the industrial and manufacturing output figures.

USD

Yesterday the dollar gained back some of the losses experienced on Friday after worse-than-anticipated US Non-farm payroll figures, but remains under pressure after comments from Ben Bernanke. Speaking live on US television Ben Bernanke suggested that the US may need a third dose of QE in future to mitigate the threat of a decline back into recession. This prediction was part of a gloomy report issued by Bernanke in which he alleged it could be ‘four or five years before the US is back to a normal employment rate. These comments, by the Chairman of the Fed have put some pressure back on the dollar as we have seen it lose ground against sterling this morning. However, one positive for the greenback was the news that a deal has been brokered between congress and the Obama administration to extend the tax cuts of the previous regime, potentially giving a short-term boost to spending to the economy but long-term losses if ratified.

EUR

The euro remains under pressure today as there are widespread rumours of major disagreements during the sovereign debt discussions in Brussels. The battle lines have been drawn over potential plans to create a Europe-wide bond and extension to the European financial stability fund. Merkel is staunchly opposed as any move would increaseborrowing costs. The political situation in Spain remained tense yesterday as the country is braced to extend its state of emergency as air traffic controllers have all but shut down the country. Since the Irish bailout was agreed there has been mounting speculation that Spain and Portugal will be next with their borrowing costs growing steadily.

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Written by Tom Tong

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