Market fairly flat as Greece and Hungary move closer to funding agreements

Tom Tong11/Jan/2012Currency Updates

GBP

Sterling slipped to a slightly lower level against the euro yesterday as investors decided to trim bets to sell the single currency across the board, however the pound remained hovering near the 16-month high hit the previous day as sentiment towards the euro widely remained negative. The slight weakening of the pound can be attributed to a hefty corporate demand for the single currency at the present historically cheap levels, this in turn prevented a further significant downside below current levels. Tuesday also saw the pound strengthen briefly against its American counterpart, yet analysts feel this is to be shortly lived and predict that Sterling will be weakened if the safe-haven U.S. currency appreciates as the euro zone debt crisis deteriorates. There was positive news for the UK yesterday as there was extremely strong demand for UK debt at an auction that was 1.9 times oversubscribed. Also, the Danes have stood by Cameron in the UK’s fight against the Franco-Germanic policy of a financial transaction tax.

EUR

Yesterday the euro dropped versus the dollar before a report that may signal Europe’s sovereign-debt crisis is hurting the region’s prospects for economic growth.

The 17-nation currency slid against most of its major peers before Spain and Italy sell securities this week amid concern the nations will struggle to meet funding needs. Gains in the dollar were limited before a report tomorrow forecast to show inflation is slowing in China, spurring speculation the Asian nation’s central bank will have more scope to support growth in the world’s second-biggest economy. Thailand’s baht fell as investors reduced holdings of the nation’s stocks.

However this morning, the common currency edged higher against both the dollar and yen on the heels of successful bond auctions in Greece and Austria. The euro also got a lift when Fitch Ratings said it was unlikely to cut its triple-A rating on France this year, lifting the Euro, albeit most likely temporarily. Despite the positive news for France Fitch has threatened to slash Italy’s credit ratings due to concerns of the extent of the labour reforms.

USD

While Republican presidential candidate Mitt Romney faces a critical test in South Carolina, the dollar and yen fell against most major peers as a meeting between Germany’s chancellor and the International Monetary Fund’s managing director added to signs European leaders are moving to end the debt crisis. China’s yuan was little changed against the dollar as U.S. Treasury Secretary Timothy F. Geithner prepares to hold talks with Premier Wen Jiabao in Beijing today. The US equity market continued its recent divergence from the woes of the Eurozone while the Dow and S&P 500 hit their highest intraday levels in 5 months.

Figures show that China’s trade grew at its slowest pace for two years last month. The Markets responded by rising in the hope that the weak figures would prompt the authorities to reduce interest rates in order to stimulate demand.

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Written by Tom Tong

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