Greek Debt: Back in the Limelight

European Union finance ministers are scheduled to meet in Brussels today to discuss the draft of their new fiscal pact and the proposed Greek debt swap. Also on the agenda are the terms of the second financing package for Greece and furtherfine tuning of the European Stability Mechanism (ESM). Meanwhile, private holders of Greek debt have indicated that they have made the 'maximum offer' on losses that they are agreeable to bear. Successful bond auctions in several Eurozone nations last week had set a positive tone for the Euro. Today market participants are eyeing the German and French bond auctions for more of the same.

Pound Sterling – UK Markets

Sterling is holding well against the US Dollar and has receded slightly against the Euro this morning. This follows Friday’ssharp recovery against the US Dollar and the Euro, perpetuated by a rise in British retail sales for December. Datareleased earlier today indicated that the household finance index climbed to 36.4 in January, from 34.3 in December. Data slated for release later this week is expected to indicate a contraction in the British GDP for the fourth quarter of 2011. Meanwhile, expectations of additional QE have been gaining ground, further supporting the view that any negative surprises on the GDP front could force the BoE to add more funding ammunition to its war chest.

US Dollar – US Markets

Last week’s data, which indicated an improvement in manufacturing conditions and a steady fall in weekly jobless claims,has successfully managed to offset concerns surrounding the state of the US economy. Markets will be closely eyeing US GDP data later this week, which is expected to show that the US economy grew by 3% in the fourth quarter. Moreover, the Federal Reserve Bank of Richmond is expected to reveal an improvement in manufacturing activity across the central-Atlantic region. With no major economic releases set for today, German and French bond auctions, as well as Greek re-financingnegotiations, are expected to set the pace for movement in the greenback.

Euro – European Markets

The Euro is trading side-ways against the US Dollar and the Pound as traders grapple with the fear that Greece might struggle to reach an agreement with its private creditors. The private holders of Greek debt have indicated that they have made the 'maximum offer' on losses that they are agreeable to bear, implying that the ball is now in the EU and the IMF’s court. All eyes are on Brussels today where EU finance ministers are set to meet. The preliminary PMI reading for the major Eurozone nations, scheduled for release tomorrow, is expected to aid traders ingauging the impact of the central bank’s most recent liquidity operations. With the economic calendar on the lighter side, today’s German and French bond auctions and bytes from the meeting of the Euro finance ministers are expected to help the Euro find direction.

Other Currencies – Highlights

The Aussie Dollar has shown resilience in the wake of market caution pending the results of the Greek debt talks and the EU finance ministers’ meeting. Data released earlier today revealed that Australian producer price inflation rose less-than-expected for December. Consumer price inflation data due on Wednesday will be closely watched for further clues to any changes in the upcoming monetary policy. Markets are expecting consumer price inflation to cool to 3.3% for the fourth quarter.