The pound weakens amid Greek bailout optimism and a looming expectation of further monetary easing

Tom Tong23/Nov/2012Currency Updates

GBP

The pound lost ground versus the common currency on Thursday following a rise in optimism coming from Europe surrounding a deal to help the debt ridden Greece with a continued bailout. Sterling has strengthened largely in the past from investors seeking safety from the debt crisis in Europe through purchases of top UK gilts which give the British currency a boost. What we are currently seeing is the is opposite and these flows are seeming to subside due to worries about the Eurozone debt crisis waning, this in turn has had an negative affect on the Pound. The European economic and monetary affairs commissioner Olli Rhen said yesterday Greece had taken all necessary steps to secure its next tranche of aid and that euro zone finance ministers should be able to sign off definitively on a deal next Monday.

The Pound received a small boost versus the Dollar on Wednesday. Gains were in fact checked as although further QE will not be happening this month the likeliness of it being opted for again in the near future still lingers.

EUR

The Euro had a successful day of trading yesterday as it made gains against a number of its major counterparts, namely sterling, US Dollar and Yen. The gains made versus both the Greenback and Sterling can be largely attributed to the ECB edging ever closer to an agreement for the second round of bailout going to Athens. This second tranche of funding is expected to take place as early as this coming Monday.

PMI data coming from Europe also helped ease some concerns about a deepening euro zone recession, adding to the sense of relief after an earlier survey showed manufacturing in the China region expanded for the first time in 13 months.

The common currency saw a strengthening against the Yen on the back of expectations of harsh QE coming from Japan in the near future. Shinzo Abe, the leader of Japan’s opposition Liberal Democratic Party, which holds a commanding lead in opinion polls ahead of a Dec. 16 election, has called for “unlimited” easing until 2 or 3 percent inflation is achieved and for pushing short-term interest rates to zero or below.

USD

With US markets closed due to the Thanksgiving holiday, there was very little activity in terms of Dollar movement. The currency did receive some marginal support during the European session with stock markets moving higher as traders reacted to better than expected Chinese manufacturing data released on Thursday.

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Written by Tom Tong

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