Greek haircut talks continue as Euro regains some ground on strong German figures

Tom Tong18/Jan/2012Currency Updates

GBP

The Eurozone looks to be determining the direction of sterling going forward. Sterling advanced from the previous day, but the lack of momentum to push above the 10 day simple moving average (SMA) reinforced the fundamental outlook for the UK deteriorating. The fall in the BofE consumer price index benchmark from 4.8% to 4.2% in December marks the start of a year of steeply falling inflation. This suggests that a February return to the printing press looked all but certain to face the growing threat of recession. The UK is braced for another rise in unemployment which could peak at 8.7% later this year. This weakening job market comes just as the cost of living is easing.

EUR

The Standard & Poor’s recent downgrades were almost ignored with the release of strong German ZEW confidence figures for January and healthy European bond auctions. This may represent a turning point for Europe’s largest economy which lead to gains yesterday against the USD and JPY, which was hovering at a 11 year low, but could not claw back the losses from Friday. This has lead to a risk rally versus its commodity focused peers with EUR/AUD and EUR/NZD hitting lows whilst EUR/CAD is not participating but rebounding. The focus today is on the talks between Greek authorities and private holders of government debt which broke down last week. The sticking point remains the rate of interest, however the fear of a default is growing or in some eyes, inevitable.

USD

The greenback lost ground broadly yesterday as no major data has been released and risk sentiment remains the driver of movement. With stronger than expected growth in China, 8.9% year on year in Q4 last year, this sparked a USD slide. However, sluggish demand from the weak Eurozone – a key market – has hit Chinese exports and with the heightening risk for contagion of Europe should see the recent weakness as short lived and expectations of advancement are growing. We also saw Citibank issue its fourth quarter earnings figure that severely disappointed, sliding by 11%, which suggests all is still not well in the US banking sector.

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Written by Tom Tong

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