The persistent delay in Greek debt swap negotiations has kept traders on the edge with risk appetite being broadly muted. Reassuring comments by the Greek Prime Minister that he is trying for a successful debt deal by the end of this week has failed to enthuse market participants. However, Markets seem to be buoyed from data released this morning which indicated an improvement in manufacturing activity across the Eurozone.
At home, data just released revealed that manufacturing PMI improved in January. However, house prices continue to decline and there was a record drop in consumer credit in December.
Pound Sterling – UK Markets
Sterling is trading in a tight range against the Euro around the 1.2000 mark, while it has regained some of the lost ground against the US Dollar.
Earlier today, the Pound was under pressure against the US Dollar after data from Nationwide indicated that British house prices declined for January. Highlighting the fragility, the agency warned that the British economy is not expected to gather much momentum until the second half of 2012. The UK housing sector remains a cause of concern as today’s data comes on the back of weak Home track housing survey released earlier this week.
However, data just released indicates that the manufacturing PMI climbed to a reading of 52.1 for January from 49.6 posted in the previous month, quashing fears of a recession in the UK.
Meanwhile, data from the BoE has indicated that consumer credit for December posted the biggest monthly drop since records began in 1993. This has increased expectations that the Bank of England will soon inject more cash into the economy to prevent a deep recession.
US Dollar – US Markets
The US Dollar is trading lower against both Sterling and the Euro as concerns pertaining to a slowdown in the Chinese economy eased, after the official PMI data from China indicated that manufacturing activity unexpectedly expanded for January.
Additionally, market speculation over additional QE dragged the US Dollar lower against the majors. The unexpected fall in the consumer confidence index and weakness in the US housing market dampened demand for the greenback. Moreover, the weak ISM-Chicago business barometer cast doubt on the strength of the US economy.
ISM manufacturing and ADP employment data due today will enable markets to gauge the possibility of further easing in the near future.
Euro – European Markets
The Euro has rebounded from its earlier losses against the US Dollar and is hovering around the 1.3100 level. Earlier today, the Euro declined against the US Dollar as concerns surrounding Portugal’s ability to refinance its debt grabbed the center stage. Today’s scheduled Portuguese bond auctions will enable markets to determine if the country will follow Greece in demanding more aid to avoid a default.
Little progress in the EU summit and no breakthrough in Greek debt negotiations so far have kept markets on the edge. Greek Prime Minister, Lucas Papademos, reassured that he wants to bring negotiations on a debt-swap agreement with bondholders “to a successful conclusion by the end of the week”.
Markets are expected to closely monitor Eurozone’s inflation figures due today. Despite the recent liquidity operations undertaken by the ECB, the inflation is expected to ease for January.
The Euro is expected to take cues from news flow from the marathon Greek debt talks.
Other Currencies – Highlights
The Australian Dollar is trading higher against the US Dollar after data indicated that the AIG Performance of Manufacturing Index climbed to a reading of 51.6 for January compared to a reading of 50.2 for the previous month. Additionally, improving manufacturing conditions in China, Australia’s largest trading partner, also buoyed trading sentiment towards the Aussie Dollar.
However, there are signs of stress in Australian housing market evidenced by weak house prices and new home sales data released earlier today.