Greece meets with Eurozone finance ministers for crunch debt talks

Enrique Díaz-Álvarez12/Feb/2015Currency Updates

GBP

Sterling touched its strongest position against the Dollar in five days before retreating in afternoon trading to finish the day 0.2% lower on greenback.

No data out in Britain yesterday. An indecisive outcome from May’s general election and weak wage growth were, however, cited as the biggest threats to the economic recovery this year by a Reuters’ poll of leading economists. 40% of those surveyed were concerned a hung parliament, which is looking increasingly likely, would cause the biggest risk, while 60% claimed an outright victory for the Conservatives would be the best outcome for economic growth.

Volatility in the UK is to be expected this morning with the release of the Bank of England’s Inflation Report, which is likely to update the central bank’s growth and inflation expectations. Crucially, this may give further insight into the timing of the first interest rate hike in the UK since the financial crisis.

EUR

The Euro touched a fresh seven year low against the Pound on Wednesday in the lead up to the Eurogroup meeting in Brussels, ending 0.1% down against Sterling and 0.25% lower on the Dollar. On Wednesday afternoon Syriza cabinet member Yanis Varounfakis headed for crucial talks with Eurozone finance ministers in a bid to press for better terms for Greece’s debt deal. In an emergency meeting, the government proposed a 30% overhaul of its bailout obligations, asking for a “bridge agreement” that would allow the country to stay afloat until it can agree a new four year reform with its EUR creditors.

There was a limited amount of data to report on Wednesday. France’s current account, which in November tipped into surplus for the first time since 2011, fell back into deficit in the final month of the year at -1.9 billion Euros. Meanwhile a poll of leading economists suggested that inflation in the Eurozone will persist until Q4, while one 1 in 4 of those survey expected Greece to leave the Eurozone this year.

A number of significant data announcements in Europe this morning will see the release of Germany inflation at 7am, followed by Eurozone industrial production at 10am, both London time.

USD

Another strong day for the US currency, as the Dollar edged closer towards the eleven year high against its peers set a fortnight ago. The US Dollar index climbed 0.4%.

Speaking in New York for the last time before stepping down as President of the Dallas Fed, Richard Fisher warned against delaying an interest rate hike in the face of weak inflation. The hawkish speech involved a proactive attack on the central bank as he criticised the structure of the voting policy citing imbalances in the division of power. In terms of economic data, the Mortgage Bankers Association index of application activity, which includes refinancing and home purchase demand, declined by 9% in the week ending 6th February. This is a historically volatile indicator although significantly this was the largest decline since as far back as June last year.

A hectic day in the global markets will be rounded off in the US with retail sales figures for January at 1.30pm GMT. Having declined unexpectedly in December, sales are forecast to have fallen once again last month.

Rest of the world

The South African Rand weakened considerably on Wednesday ahead of today’s crucial annual address by President Zuma who is under pressure to reassure investors about South Africa’s finances as the economy continues to suffer from almost-daily blackouts.

Print

Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.