Following yesterday’s weak domestic BRC retail sales data, an update released earlier today indicated that shop price inflation for January eased to almost a two year low. This highlights the dire state of retailers who have kept prices in check to entice cash-strapped customers, and has strengthened market speculation of an additional stimulus by the BoE in the rate setting meeting scheduled for tomorrow.
The procrastination in Greek debt talks continues, with another meeting due later today. However, reports suggest that Greece may be close to clinching the second bailout package from the Troika.
Pound Sterling – UK Markets
Sterling is trading below the 1.20 mark against the Euro this morning on mounting worries over the state of the UK retail sector. Following yesterday’s dismal retail sales data, the BRC indicated that British shop price inflation for January slipped to almost a two-year low. However, the BRC Director General, Stephen Robertson, indicated that the decline in prices will help to improve consumer confidence.
Meanwhile, the Pound has moved higher against the US Dollar, amid easing concerns over Greece.
US Dollar – US Markets
Market optimism over an imminent Greek debt deal has led the dollar to trade lower against both the Pound and the Euro this morning.
Additionally, yesterday’s keenly awaited testimony from Ben Bernanke offered no change to the Fed’s broadly dovish stance, despite the recent strong jobs data. The Fed Chairman indicated that the 8.3% rate of unemployment in the US understates weakness in the labour market. This has reignited market speculation of an additional round of quantitative easing and has pressured the US Dollar against the majors.
With the US economic calendar on the lighter side today, the direction of the greenback against the majors is likely to be driven by news flow from the Eurozone.
Euro – European Markets
The Euro rose to its highest level in eight weeks against the US Dollar and was hovering just below the crucial 1.3300 barrier, amid reports that Greece is closer towards securing additional international aid. Moreover, the German Chancellor, Angela Merkel, reiterated that Greece remains an integral part of the Eurozone.
Against the backdrop of the ongoing Greek conundrum, the ECB braces itself for Thursday’s meeting, wherein it is widely expected to keep its monetary policy stance unchanged. However, it may signal its readiness to lower interest rate in March 2012.
Data released earlier today indicated that German trade surplus narrowed more-than-expected for December, underpinned by weak exports. This has come on the back of yesterday’s sharp decline in German industrial production.
The Euro could take cues from the scheduled meeting of the Greek Prime Minister with the heads of three political parties later today.
Other Currencies – Highlights
The Swiss Franc has lost ground against the Euro and Sterling this morning, after data indicated that the Swiss unemployment rate for January rose to its highest level in 10 months. Additionally, signs of resolution to the Greek debt negotiations have prompted traders to shun safe haven currencies and move towards high yield assets.
Yesterday, the Swiss National Bank Vice Chairman, Thomas Jordan, warned of a considerable slowdown in the nation’s economy in 2012 and indicated that a worsening European crisis could risk deflation in the economy. He further affirmed the central bank’s commitment to defend the minimum exchange rate of 1.20 Swiss Francs per Euro.
British Pound Suffers Losses Ahead of Tuesday's Critical Vote