Greek see-saw continues

Greek debt worries fail to die, as market participants eye the response of key leaders of Greek political parties to demands by international creditors on economic measures. The ongoing tussle in Greek debt talks, coupled with recent strong UK PMI and confidence numbers, have turned the tide in favour of the Pound against the Euro. The robust UK data has made the call for additional stimulus a little trickier for the BoE at its scheduled rate setting meeting on Thursday. Across the Atlantic, markets were positively surprised by the release of upbeat jobs data on Friday.

Pound Sterling – UK Markets

Sterling has strengthened against the Euro this morning and is hovering close to 1.21 levels, after data from Halifax revealed a rise in UK house prices for January. Lloyds employment confidence index also indicated an improvement, as persistent concern over the outcome of Greek debt-swap talks has prompted traders to move towards the Pound vis-à-vis the Euro. However, the Pound has failed to hold the 1.5800 mark against the US Dollar, as traders remain wary ahead of the BoE’s monetary policy meeting due later this week. Falling inflation and weak fourth quarter GDP data have lent support to prospects for additional asset purchases. However, the recent improvement in PMI numbers, coupled with strong Lloyds confidence indices, may prompt the BoE to add £50 billion in stimulus as opposed to initial expectation of £75 billion. Moreover, data due later this week is expected to indicate a recovery in industrial and manufacturing production for December.

US Dollar – US Markets

The US Dollar has gained against both the Euro and Sterling this morning, as concerns surrounding Greece continue to haunt markets. Traders turned risk-averse, owing to the looming threat of a Greek default, as reports indicate that Greek political leaders have yet to agree on a coordinated response to reforms outlined by the Troika. Meanwhile, dwindling prospects for additional QE in the US has also provided support to the US Dollar. On Friday, data indicated that the unemployment rate in the US slipped to 8.3% for January, the lowest level since February of 2009. The strong jobs report, coupled with improving manufacturing conditions across the US, have tamed voices urging for more stimulus. Boosting sentiment further, St. Louis Fed President, James Bullard, stated that QE3 is not warranted, as the broader US economy appears to be gaining momentum. With no influential US economic data on tap today, risk tone is likely to be governed by developments emanating from Greece.

Euro – European Markets

The Euro has slipped below the 1.3100 mark against the US Dollar as worries surrounding Greece fail to recede. Greece’s next tranche of payment from the Troika seems to be in jeopardy, as leaders from the Eurozone insist that Greece will have to persuade its private creditors to take losses to reduce the country’s debt pile. Moreover, Eurogroup Finance Ministers Head, Jean-Claude Juncker, warned that the possibility of a sovereign default by Greece cannot be ruled out. Today sees the release of German factory orders for December, which is expected to be largely upbeat. A meeting of Angela Merkel and Nicolas Sarkozy, along with a €8.5 billion French bill auction slated for later today, will also be keenly eyed by investors. Meanwhile, data just released indicates a sharp improvement in Eurozone investor confidence for February.

Other Currencies – Highlights

The Australian Dollar came under pressure against the majors this morning, after data indicated that Australian retail sales unexpectedly declined for December. There is heightened speculation that the Reserve Bank of Australia may lower its benchmark interest rate by 25 basis points tomorrow. Data released earlier today indicated that consumer price inflation in Australia eased to 2.2% for January compared to a 2.4% rate posted for December. Additionally, concerns surrounding Chinese economic growth resurfaced, after the IMF warned that China’s 2012 GDP growth may decline to 8.25% from 9.2% in the previous year. Moreover, mounting woes in the Eurozone have dampened demand for high yield currencies.