Can The Euro Maintain Strength?

Following five days of gains on the US Dollar, the Euro is looking more fragile today after currency trading so far has seen both the Dollar and Sterling gaining ground on the single currency. The Pound reached the 1.20 levels against the Euro last week before dropping back to the 1.19s. How the Euro’s movement will pan out this week may well hinge on the outcome of some crucial EU meetings. Today sees EU Ministers meet to discuss rescue-funds with the belief being that Germany will not support an increase to these funds. Tomorrow may also bring some Euro uncertainty as the vote of confidence takes place in Ireland over Prime Minister Brian Cowen.

Pound Sterling – UK Markets

The Pound fell against the Euro in the second half of last week but has continued to gain on the Dollar as Standard and Poor’s suggested that the US credit rating could be at risk. The outlook on Sterling in terms of economic data is quite mixed for the week ahead. Friday saw higher than expected input and output producer price figures. This Tuesday sees CPI inflation data expected to have increased to a year on year figure of 3.4 percent increasing pressure on the Bank of England to raise interest rates. Retail sales data on Friday however is expected to disappoint due to the effect of snow on December’s sales so it could be a volatile week.

US Dollar – US Markets

The US Dollar has fallen lower against the Euro and Sterling since Thursday following mixed data releases from the US including unexpected declining consumer confidence figures and a rise in monthly CPI prices data. CPI showed an increase of 0.5 percent in price movements for December against an expected rise of 0.4 percent however most of Friday’s data was disappointing for the US economy. Other external factors have also been influencing the Dollar. In particular, the strengthening of the Euro last week due to support from Asia and successful bond auctions helped the Euro make gains whilst Standard and Poor’s warned that the US could lose their credit rating if more steps are not taken to reduce debt.

Euro – European Markets

The Euro made some recovery last week despite the ongoing concerns about sovereign debt, with successful bond auctions helping to shore up confidence. The currency has become more vulnerable this morning however as EU finance ministers meet today with heightening speculation that Germany will not support increasing the size of rescue funds. Confidence renewed last week by the Portuguese, Spanish and Italian bond auctions was also shored up by further shows of support from China and Japan. There was also some minor speculation about interest rate hikes as comments were made about inflation pressures. As well as today’s EU meeting where the size of rescue funds will be debated, tomorrow may see some Euro movement as a vote of confidence takes place on the Irish Prime Minister Brian Cowen.

Other Currencies – Highlights

Problems in the Chinese economy has been in the headlines as property prices have risen again in December but for the slowest annual pace in over a year. At the same time, currency issues have remained contentious with Chinese President Hu Jintao discussing in two US papers that the domination of the currency markets by the US Dollar was ‘a thing of the past’. This comes just before a state visit to Washington this week. Both nations have had issues with desiring a weaker currency to help boost exports. The Australian Dollar has dropped to a six week low against the New Zealand Dollar as the effects of the floods on economic growth continue to weaken the Australian currency. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.