European output figures show shock decline as Spanish banking sector lurches into new crisis

Tom Tong15/Feb/2013Currency Updates

GBP

Sterling’s recent loss of ground against the Dollar began to curtail yesterday due to a switch in market focus towards the Eurozone. In contrast, the relationship between Euro and Sterling appears increasingly volatile, owed to the sentiments of Mervyn King’s speech on Wednesday, coupled with poor news from the Eurozone.

News being released today on sterling, includes the retail sales data, with the consensus expecting a positive release, we can expect that a deviation from these expectations may cause more volatility in sterling. In politics the Labour party have announced plans to impose a new ‘Mansion Tax’ on homes over 2 million in value, in an attempt to redistribute wealth by funding the 10p tax rate they abolished in government.

EUR

Yesterday saw the Euro lose ground as it suffered another decrease in output in the final quarter of 2012. The unexpected news from France and Germany (the two biggest and far most resilient economies) suffered sharp falls of .3% and .6% respectively. The periphery fared worse with Portugal, Spain, Italy and Greece seeing output drop by .9% to 3.8%. This release of economic data suggests for now that the Eurozone is some way off it emerging from the recession. The only countries in the Eurozone to enjoy positive news were Latvia, Estonia and Lithuania with growth during 2012.

Shares in the Spanish lender Bankia plunged yesterday 22.65% at an all time low as the recapitalisation plan for the Bank could wipe out its investors. Bankia applied for a European rescue worth €18bn, which lead to newspapers valuing the shares at €0.01.

The EU financial transaction tax (FTT) was extended yesterday as the 11 members implementing the charge plan to levy the tax globally. In the UK this is seen as direct attack on London as a financial centre and an attempt by Brussels to gain influence over Europe’s financial capital.
There are no data releases of note today with the G20 meeting expected tomorrow,
No data released today of note.

USD

The dollar climbed against the euro on Thursday as data from the Eurozone came in below expectations. Against Sterling the Greenback traded a fairly tight range near the seven month lows. Ahead of an important meeting between the worlds top finance minsters the declined against the Yen but still hovering near new two year highs.

The ICE dollar index, which measures the greenback against a basket of six other major currencies, rose from 80.082 to 80.455 last night. The US buy out market remains buoyant as Warren Buffett and 3G capital stole the headlines with a industry record buy out for food group Heinz.

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Written by Tom Tong

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