Greece Clinches the Deal

The much awaited €130 billion bailout package for Greece was finally approved by European finance ministers with strict conditions, including a 53.5% haircut on Greek bonds owned by private investors. However, market concerns that the deal is only a short-term fix has kept gains in the Euro subdued. Meanwhile, markets await the release of the Eurozone’s consumer confidence data for February later today. At home, data just out indicates that public sector net borrowing declined for January. All eyes are now on tomorrow’s release of the BoE’s minutes, which will provide some insight into this month’s voting pattern that led to the additional £50 billion in stimulus.

Pound Sterling – UK Markets

The Pound has slipped against the Euro and is hovering just below the 1.1950 mark as fears of a Greek default were quashed, after European finance ministers agreed on terms of the second bailout deal for Greece. Meanwhile, fears that Britain would enter into a recession in 2012 have subsided, enabling the Pound to hold firm against the US Dollar. A survey by the Institute of Directors indicated that Britain's business leaders are remarkably confident about prospects for their companies in 2012. Moreover, concerns surrounding the British housing sector continue to ease, after the Council of Mortgage Lenders indicated that UK’s gross mortgage lending for January climbed 10% from a year earlier. This comes on the back of yesterday’s strong housing data from Rightmove. Data just released indicates a fall in the public sector net borrowing for January.

US Dollar – US Markets

The US Dollar has declined against the Euro this morning after Eurozone leaders reached an agreement to provide additional aid to Greece to prevent the looming default, prompting traders to shun safe haven currencies. In the backdrop of an improving economic landscape in the US, the annual White House report to Congress suggests that President Obama’s advisers expect the US economy to gain momentum in 2012 and add around 2 million jobs. The Chicago Fed national activity index is the only major economic release due today and is expected to indicate an uptick for January.

Euro – European Markets

The Euro has moved marginally higher against the majors this morning, after the widely expected EU ratification of the second Greek bailout came into fruition. The marathon meeting resulted in a bailout package of €130 billion and is aimed at trimming the Greek debt to 120.5% of GDP by 2020. The agreement will also see private bondholders write down at least 53.5% of the face value of their holdings. EU’s Juncker noted that the deal will give Greece time to reform and return to sustainable growth. To add to the buoyancy, the ECB indicated that it bought no government bonds last week, highlighting that sovereign debt concerns have taken a back seat. Investors eagerly await the Eurozone’s consumer confidence data due later today, which is expected to show an improvement for February. With no other significant release, the currency is likely to track the Spanish bills auction scheduled later today.

Other Currencies – Highlights

Despite growing optimism following the Greek debt deal, gains in the Aussie Dollar were capped amid fears that the Australian central bank may undertake easing measures to boost the economy. The Reserve Bank of Australia’s minutes for the latest monetary policy meeting indicated that the “inflation outlook would provide scope for a further easing in monetary policy” if demand conditions weaken in the economy. The recent cut in reserve requirements for Chinese banks has fuelled speculation that the Chinese central bank would resort to additional easing measures during the course of the year, to maintain growth. This has acted as a support to the Aussie Dollar. With a relatively quiet day ahead, markets await the release of leading indicator indices reported by both the Conference Board and Westpac, to provide further direction to the Australian Dollar.