Euro plunges as crucial Eurogroup talks collapse in Brussels

Enrique Díaz-Álvarez17/Feb/2015Currency Updates

GBP

Sterling lost ground gained after last week’s inflation report, as markets opened for the week yesterday. A public holiday in the US did nothing to stop the Pound declining by 0.5% against the US Dollar.

According to Rightmove the average asking price for a property in Britain rose by 2.1% in February. An increase in interest in the market following the traditionally quiet December and January months has led to a fall in the number of quality homes, pushing up prices by an annualised 6.6%. Elsewhere, a representative of the European Commission stated a UK withdrawal from the EU would be a “disaster” for all involved.

Inflation in the UK is expected to have fallen to a record low level last month, having plunged to 0.5% in December. CPI data from National Statistics at 9.30am today will reveal all, with price growth forecast to register a meagre annualised expansion of 0.3% in January. This would represent the lowest reading since records began in 1989 and heap further pressure on policy makers.

EUR

A failure to reach an agreement in the crucial Greek debt talks in Brussels caused the Euro to fall sharply against the Dollar in afternoon trading, to finish 0.7% down.

High stakes talks between Greece and Eurozone finance ministers were abruptly halted without progress on Monday. Eurogroup chief Jeroen Dijsselbloem cited a “lack of common ground” on what Greece’s bailout programme would look like, with the best option being for Greece to seek an extension to the programme. Greece’s Finance Minister Yanis Varoufakis labelled the plan as “absurd” and declared he was ready to do “whatever it takes” to reach agreement over its bailout. An additional meeting for Friday could now be a possibility.

The trade surplus continues to grow in the Eurozone after data from Eurostat showed that the balance of trade hit an all-time record high in December. An eight percent surge in exports offset a marginal one percent increase in imports, causing the surplus to soar to 24.3 billion Euros in December, close to double the 13.6 billion that was recorded in December 2013. Meanwhile, the German Bundesbank revised its growth forecast markedly higher after a “remarkable” pickup in German strength.

Consumer sentiment data out today as ZEW releases its monthly confidence indicators at 10am.

USD

The New York Stock Exchange was closed in the US on Monday as the country observed a national holiday in memory of George Washington’s birthday. The lack of any data whatsoever therefore made for a quiet day’s trading in the world’s largest economy. The greenback finished 0.5% up on its major peers.

The rest of the week, however, looks set to be rather hectic for the US economy, with all eyes set on Thursday evening and the release of the FOMC meeting minutes for February. At the previous two meetings the central bank adopted a more hawkish stance, replacing its “considerable time” phrase with “patient”. As far as today is concerned, a number of smaller releases, including the Housing Market index at 3pm, are likely to cause moderate levels of volatility in the Dollar.

Rest of the world

Japan’s economy, the third largest in the world, clawed itself out of recession in the final three months of last year. Boosted by a 2.7% increase in exports, growth of 0.6% in Q4 led to an annualised expansion of 2.2%, although even this was somewhat below expectations.

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.