Euro rallies on Eastern Promise

Today’s better-than-expected Chinese GDP, industrial production and retail sales data, along with yesterday’s successful French bond auctions, have set the ball rolling for high yield currencies. French bond auctions fared well yesterday despite the mass downgrading of nine Eurozone countries on Friday. Meanwhile, following yesterday’s S&P downgrade of the EFSF, all eyes are focused on bond auctions by the EFSF, along with Spain and Greece, slated for later today. At home, data just released has indicated that consumer price inflation eased for December, while the retail price index climbed.

Pound Sterling – UK Markets

The Pound has shed yesterday’s gains against the Euro and returned to around the 1.2040 level. Data just released indicates that consumer price inflation in the UK eased to 4.2% for December, compared to 4.8% recorded in November. This has strengthened market speculation that the central bank will undertake further easing measures to boost growth. Meanwhile, the retail price index climbed for December. On the contrary, Sterling has surged against the US Dollar this morning as a plethora of upbeat economic releases in China prompted investors to move towards high yield currencies. Markets are expected to closely monitor BoE Governor, Mervyn King’s speech, due later today, for a further insight into the central bank’s plans to tackle growth concerns over the domestic economy.

US Dollar – US Markets

The US Dollar is under pressure against both the Pound and the Euro as the better-than-expected GDP, industrial production and retail sales data in China, prompted traders to favour high yield currencies. Additionally, yesterday’s successful French bond auctions further dampened trading sentiment towards the US Dollar. With a light economic calendar today the only release on tap is manufacturing sector activity for the New York region, which is expected to indicate the fastest pace of expansion in eight months for January. The “risk on” trading sentiment prevalent in markets today is expected to lead the US Dollar lower against the majors.

Euro – European Markets

The Euro has breached the 1.2700 level against the US Dollar while recovering most of yesterday’s losses against the Pound, after S&P’s downgrade of the French credit rating failed to impact France’s bond auction held yesterday. Additionally, better-than-expected Chinese fourth quarter GDP has spurred demand for high yield currencies. Adding to the optimism, the European Council President, Herman Van Rompuy, has asserted that the EU will agree on the new fiscal compact treaty at the end of this month. Meanwhile, markets are keeping a close eye on the outcome of bond auctions in Europe after S&P yesterday stripped the EFSF of its “AAA” rating. The Eurozone’s bailout fund is scheduled to auction €1.5 billion worth of bills later today, in addition to auctions by Spain and Greece. A heavy economic calendar today includes Eurozone consumer price inflation and the German ZEW Survey.

Other Currencies – Highlights

The Aussie Dollar is trading sharply higher against the US Dollar this morning after data indicated that fourth quarter GDP growth in China, Australia’s biggest trading partner, surpassed market estimates. Moreover, an unexpected rise in Chinese industrial production and retail sales for December, revived hopes that growth in the world’s second largest economy is likely to sustain. Strengthening commodity prices coupled with gains in Asian equity markets and a firm start to the European equity session, have further buoyed trading sentiment towards the Australian Dollar.