Speculation has been rife over whether the European bail out package for Ireland is safe since the Green Party removed themselves from the Irish coalition Government at the weekend. The political uncertainty of no majority, has called into question whether the bailout will package will be safe. As crisis talks take place today in Ireland, the Euro is still in a strong position against the Dollar and the Pound on broader issues such as the recent successful bond auctions and growing confidence in individual nations. With a raft of data due from the UK and the US this week, the markets are set for a volatile week.
Pound Sterling – UK Markets
The Pound showed firm gains against the US Dollar on Friday despite disappointing UK retail sales figures with the continuing hype over whether higher inflationary pressures will cause an interest rate rise giving Sterling some momentum. The currency has dropped since most major counterparts including the Euro sine Friday however.
This week is set to be quite key for Sterling with a raft of key data releases that could cause volatility in the rates. Tomorrow sees GDP data for the 4th quarter of 2010 with a decline expected although if the severe weather causes the actual figure to drop even lower than expectations we could see some downwards pressure on the Pound.
On Wednesday, the Bank of England minutes could also give further information about the more detailed thoughts of the monetary policy committee in relation to economic growth.
US Dollar – US Markets
Friday saw pressure on the Dollar as the Euro reclaimed a two month high against the US currency although this has shown some slight advancements over the weekend and this morning as reports on the US economy throughout this week are expected to boost optimism.
GDP on Friday as well as consumer confidence figures tomorrow are expected to come in high with the US economy growing at a faster pace in the fourth quarter of 2010. Consumer spending is expected to have grown at the fastest rate for four years. Interest rates are expected to remain unchanged at the Federal Reserve meeting this week but all in all it’s a heavy economic calendar with the potential to move the Dollar depending on whether results come in as predicted or under target – predictions are generally optimistic.
Euro – European Markets
The Euro is still in a fairly strong position against Sterling and the Dollar, with tensions in Ireland and the potential effect on the finance budget, having little effect so far. With this week being heavy on US and UK data, the Euro may respond to broader market themes.
German and French business confidence have improved which has helped shore up the Euro alongside successful bond auctions and growing confidence that further plans are being made about European rescue funds.
Political uncertainty from Ireland over the weekend, as the Green Party left the coalition meaning that the Government is short of a majority, has implications for whether or not the European bailout package and finance budget can be approved. Crisis talks are being held however and with the message being that that the finance bill will be safe. There has been little impact on the Euro so far but depending on how this issue plays out this week will make clear whether the finance package is really at risk or not.
Other Currencies – Highlights
The Canadian Finance Minister has commented that he does not expect the nation’s currency to weaken with recent gains reflecting rising confidence in the country and commodity prices.
Last week, the Bank of Canada officially termed its expectations for economic recovery as ‘modest’ as the strong currency may limit exports.
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