Outlook for the Eurozone begins to look more positive as Draghi is optimistic for 2013

Tom Tong11/Jan/2013Currency Updates

GBP

The Bank of England voted to keep interest at 0.5% yesterday and as the market reacted to this data sterling came under pressure. The nine member monetary policy Committee also voted to keep bank’s QE target at £375 Billion. Both of these moves had been expected by economists and in light of this have done little to surprise the markets.

In more UK news the divided state of the UK retail sector was bought into sharp focus as an upbeat Tesco and Shop Direct claimed victory in the Christmas retail wars. Earlier this week the British retail consortium said that online sales had propped up the sector over Christmas.

A mixed bag of tier tier two and tier one data out of the UK today including industrial and manufacturing production which are expected to be more positive than when last reported.

EUR

The European Central Bank hailed a ‘normalisation’ in financial market conditions as its governing council voted unanimously to keep rates on hold signalling confidence that the Eurozone would stage a gradual recovery from the recession later in the year. In terms of market movement the Euro rallied against the dollar and a basket of other currencies yesterday as Draghi spoke at a regular monthly press conference after its decision to keep its main refinancing rate unchanged at 0.75%.

Draghi was upbeat as he listed the factors which we have seen improve in the short term, these include falling yields on sovereign bonds, strong capital inflows, an increase in bank deposits in crisis hit Eurozone countries, a shrinking of the ECB’s balance sheet and improvement in business confidence survey. This has all been seen as very positive for the Eurozone.

In other news investors showed increasing trust in the Spanish and Italian government yesterday allowing the countries borrowing costs to fall to unexpectedly low levels. This came as Standard and Poor published a report arguing the Eurozone could start to emerge from Sovereign debt troubles in 2013.

Data out of Europe is minimal as we lead into the weekend.

USD

Against the backdrop of a surge for the S&P 500 and a remarkable climb for EUR/USD it was not difficult to see the pain the dollar was in yesterday as the dollar dropped to its lowest levels since September. This move in EUR/USD was seen by many as not necessarily a sign of dollar weakness but more a reaction to more positive news out of Eurozone.

In other news Barack Obama has nominated Jack Lew to be the next US Treasury Secretary bringing a mixed reaction from congress and business and heralding scrutiny during the looming confirmation hearings. US stocks climbed to a firve year high as the financial sector in the US came into focus with investors preparing for Wells Fargo one of Wall Steeets leading banks to report its latest quarterly results

A mixture of tier two and tier one data out of the US today including the trade balance in November.

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Written by Tom Tong

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