Countdown to the Greek Deal Begins

With all eyes fixed on the European finance ministers meeting scheduled later today, market participants expect Eurozone leaders to approve the €130 billion Greek bailout package. Additionally, the monetary policy easing step taken by the Chinese central bank has further helped high yield currencies to gain traction. With a US holiday today and little in terms of economic releases in Europe, markets are likely to takes cues from news on Greece and the scheduled bond auctions in Europe. At home, data released earlier today indicated that house prices for February posted the biggest monthly rise since April 2002.

Pound Sterling – UK Markets

Sterling has gained against the US Dollar this morning after worries over the housing sector subsided, following data from Rightmove indicating that house prices in Britain posted the biggest monthly rise since April 2002. Moreover, trading sentiment in the pair is upbeat after Friday’s unexpected increase in UK retail sales for January. To add to the optimism, the British Retail Consortium indicated that strong Christmas sales lifted footfall numbers by 1.8% over the three months between November and January. However, the Pound has lost ground against the Euro, as optimism surrounding the Greek debt deal prompted traders to move towards the Euro. Meanwhile, BoE policymaker, Adam Posen, indicated that he is “comfortable” with the central bank’s forecasts for UK inflation and growth. With a light economic calendar today, the market is keeping an eye on minutes of the BoE’s latest monetary policy meeting scheduled to be published on Wednesday and the first revision to fourth quarter GDP numbers due on Friday.

US Dollar – US Markets

“Risk-on” trade received a boost after the People’s Bank of China cut its reserve requirement ratio by 50bps to 20.5% for larger financial institutions, even as the Chinese economy recorded a rise in inflation for the previous month. The central bank’s action has managed to fend off worries pertaining to credit growth in the economy and prompted traders to move towards high yield currencies. With no economic releases due today, market focus is on the Eurozone finance ministers meeting in Brussels. The US Dollar has remained subdued against the Euro and Sterling since early trade today after reports indicated that the region’s leaders would commit necessary funds to stave off a Greek default. On Friday, data indicated that the annual inflation rate hovered well above the central bank’s target rate of 2%. Among key economic releases for the week, new home sales data is expected to indicate an improvement whilst jobless claims are expected to register an uptick.

Euro – European Markets

Market optimism that European finance ministers, at their meeting scheduled later today, may approve the next tranche of aid to Greece has aided the Euro to register gains against the US Dollar. Optimism brewed after the Greek Prime Minister stated that his government has identified necessary cuts to lower spending by an additional €325 million. Moreover, the Chinese central bank’s move to cut its reserve requirement ratio for major commercial banks came as a major boost for risky assets. Friday’s data indicating a widening current account surplus and improving construction output in the Eurozone helped to ward off worries surrounding the region’s growth prospects. Meanwhile, markets await a slew of PMI data across the Eurozone later this week.

Other Currencies – Highlights

The Japanese Yen has retreated against Sterling and the Euro, after data indicated that the trade deficit for January widened to a record high, with a significant decline in the nation’s exports. Worries over the health of the Japanese economy popped up after data revealed a decline in Japanese department store sales and the leading index was revised lower. Additionally, positive global cues weighed heavily on the demand for safe haven currencies. Meanwhile, threat of a possible credit rating downgrade of Japan looms, after S&P maintained a ‘Negative’ outlook on the nation’s credit rating and warned that a downgrade is likely if medium-term growth prospects weaken.