All eyes on Athens

Yesterday’s well received Spanish and Greek bond auctions, coupled with a significant improvement in German economic sentiment index, have buoyed sentiment towards the Euro. Additionally, reports suggesting that Greece is nearing a deal on its debt with private bondholders have further improved trading sentiment in high yield currencies. In this session, market participants are eyeing German and Portuguese bond auctions and news bytes from talks between Greek officials and private bondholders. On the domestic front, data just released has indicated a rise in the unemployment rate for November, while the claimant count rose less than expected.

Pound Sterling – UK Markets

The Pound has steadily lost ground against the Euro since yesterday and is now trading below the 1.2000 mark, primarily driven by positive news flows from the Eurozone. However, the “risk on” trading sentiment has seen Sterling cement its gains against the US Dollar. Meanwhile, yesterday’s sharp decline in December’s inflation figures has spurred market speculation that the BoE may resort to additional easing measures at its next monetary policy meeting. The BoE Monetary Policy Committee member, Adam Posen, has opined that concerns over inflation are “unfounded”. Data just released reveals that the claimant count in the UK rose by a less than expected 1200 people for December, while the unemployment rate rose to 8.4% for November, against expectations for an unchanged reading of 8.3%. We expect Sterling to take direction against the majors from news flow from Greek negotiations with private bondholders.

US Dollar – US Markets

A sudden spell of optimism over the global economic scenario has eroded demand for the US Dollar against Sterling and the Euro. Highlighting a strong economic landscape, yesterday’s US data indicated the fastest pace of expansion in the New York region manufacturing activity, in nine months. However, the World Bank’s Director of development prospects, Hans Timmer, cautioned that; despite positive economic data it will take “many, many years” for the US economy to recover and reduce unemployment levels. An eventful day in terms of economic releases lies ahead, with traders expecting upbeat numbers on industrial production and homebuilder confidence. Markets are also expected to closely monitor producer price inflation data, which is expected to provide an insight into inflationary trends in the US, especially ahead of the key consumer price inflation data due tomorrow. Bond auctions and Greek negotiations are likely to set the tone for risk appetite today and determine the direction of trading.

Euro – European Markets

Market reports that Greece is on the verge of clinching a deal with its private bondholders, have aided the Euro to register gains against the majors. Investors seem to have taken Fitch Ratings’ caution over a Greek default in their stride. Allaying concerns over further downgrades, S&P is assuring that there is no risk of a German downgrade even in case of a recession. Further soothing market nervousness the ECB Governing Council member, Ewald Nowotny, has indicated that the central bank is contemplating new ways to stimulate growth. Against the backdrop of yesterday’s successful bond auctions and an improved economic sentiment index in Germany, investors are keenly eyeing German and Portuguese debt auctions slated for later today. With no major economic release today other than the Eurozone construction output, the Euro is likely to track the outcome of critical bond auctions and Greek debt swap negotiations.

Other Currencies – Highlights

The Kiwi Dollar is trading higher against the US Dollar after data from the Real Estate Institute of New Zealand indicated that residential property sales in New Zealand climbed 20.1% annually for December, the biggest increase for the month of December since 2007. Additionally, upbeat market mood owing to the improving global economic scenario has further helped trading sentiment towards the Kiwi Dollar. On the economic front investors await fourth quarter consumer price inflation, scheduled for later today, which is expected to be subdued. The inflation data will be closely watched for clues to any changes in monetary policy.