Continued concerns over the Eurozone as second Greek bailout delays continue

Tom Tong17/Feb/2012Currency Updates

GBP

Thursday’s trading saw Sterling strengthen against a bearish euro as concerns continue to affect market attitudes to the single currency over delays regarding a second Greek bailout. Questions have also started to rise over whether BoE will bring further monetary stimulus to the UK economy as near-term dovish tones soften.

The pound also saw gains against the dollar as a large buy order at the 1600 GMT through the intervention of BoE caused the currencies to rally. Thus as a result Sterling climbed to regain previous levels saw earlier in the week before ratings agency Moody’s put the UK’s prized triple-A credit rating on negative watch.

The Bank of England Governor, Mervyn King, announced that there were to be downside risks to the UK economy as recovery is dependent on tight fiscal conditions. Sterling may also appreciate further over the near-term softens its dovish tone.

EUR

The euro saw weak trading against most major currencies yesterday particularly AUD despite international lenders have agreed on budget cuts worth 325 million EUR. This is however a boost to the eurozone as it is to help improve fragile risk sentiment that took a knock after a decision on the Greek bailout was delayed.

Despite this more pressure has been put on the euro as Spain’s economy has shrunk for the first time in two years, increasing fears the country could be heading for a recession. Spain saw their economy shrink by 0.3% over the previous quarter and with unemployment figures passing the five million mark the situation appears to inevitable.

The ECB quarterly survey of professional forecasters found that economists expect 0.1% contraction in the eurozone in 2012, followed by 1.1% growth in 2013. The previous survey in November forecast 0.8% growth this year and 1/.6 next year. Portugal said unemployment rose to 14pc at the end of last year. However, Italy posted an International trade surplus of 1.45bn for December, compared with a deficit of 3bn in the same month of 2010.

This raises further questions on the eurozone as Holland and Italy both released data that saw both their economies shrink by 0.7% in the fourth quarter, the second consecutive quarter of economic contraction.

USD

The Greenback saw gains against most major currencies on Thursday as negative news continue to come out of the eurozone. This was forced by the delay in Greek bailout negotiations, but then another round of very strong US data boosts risk appetite.

Thursday also saw more positive news for the US economy as data showed new claims for unemployment benefits fell to their lowest level since March 2008. Off the back of this news Asian markets have risen on hopes of a recovery in the US after the world’s biggest economy reported better-than-expected jobs data.

Today see’s further key data coming out of the US as figures for the Consumer Price Index for both MoM and YoY will be released. This will have a significant impact on the outlook for trading throughout the course of the day and the direction for the Greenback over the weekend and into next week.

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Written by Tom Tong

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