As we near the end an action-packed week market participants appear to be on edge as negotiations on a Greek debt-swap deal extend to a second day. With markets still digesting the outcome of the FOMC meeting held earlier in the week, today’s focus will switch to crucial US GDP data which is expected to indicate accelerated growth for the fourth quarter of 2011.
At home there are further signs of stress in the economy with the CBI retail sales balance yesterday indicating the lowest reading since March 2009.
Pound Sterling – UK Markets
Sterling is holding firm against the majors this morning despite fears of a recession in the UK and additional stimulus by the BoE. Yesterday, the Confederation of British Industry (CBI), in its Distributive Trades Survey, revealed that the retail sales balance for January slipped to its lowest level since March 2009. Moreover, the survey projected that sales volume will continue to decline for February. This comes on the back of dismal GDP numbers released earlier in the week.
Meanwhile, the Prime Minister, David Cameron, opined that Europe "has a long way to go" and must stop throttling growth with excessive bureaucracy and "mad" taxes.
US Dollar – US Markets
The US Dollar has gained marginally against the Euro and is trading close to the 1.3100 levels, as persistent uncertainty over the Greek debt-swap deal prompted traders to reduce their bets on high yield currencies.
Euphoria surrounding the outcome of the Fed’s rate setting meeting seems to have passed as investors gear up for the fourth quarter GDP numbers due today. This data is expected to show a faster pace of growth that could dampen prospects for another round of large scale asset purchases.
Yesterday’s better-than-expected growth in durable goods orders and a sharp rise in the Kansas manufacturing activity have strengthened belief that the US manufacturing sector is likely to remain the bright spot in the economy. However, subdued weekly jobless claims data has increased worries for traders ahead of the key payrolls figures due next week.
Today’s session also features the release of the Reuters/Michigan consumer confidence index and personal consumption data. We expect the US Dollar to track Greek debt negotiations and the slew of critical domestic economic releases for further direction.
Euro – European Markets
The Euro declined marginally against the US Dollar this morning as traders remain anxious following the extension of Greek debt talks to the second day today. The solution to the Greek debt crisis in the near future seems far-fetched at this point of time.
The Euro managed to limit its decline against the US Dollar after the Greek creditors committee indicated that "some progress was realised" following the first day of meetings with Greek officials. Additionally, Italian 10 year bond yields briefly slipped below the 6.0% mark during yesterday’s trading session, following a positive response to Italian bond auctions.
Meanwhile, data just released indicates that German import price inflation eased, while the Eurozone M3 money supply growth slowed for December.
We anticipate the news flow from the Greek debt negotiations to set the tempo for the Euro against the majors over the next few trading sessions.
Other Currencies – Highlights
The Japanese Yen has strengthened against the majors this morning even after the Japanese Prime Minister, Yoshihiko Noda, urged the central bank to take “bold” action to counter the Yen’s gain. The minutes of the last meeting of the Bank of Japan indicated that the steps taken by the central bank to combat the current economic slowdown have been effective. However, the policymakers have not ruled out the use of additional measures if the economic situation deteriorates.
Data released earlier today indicated that the deflationary trend in the Japanese economy continues to persist. However, retail sales rose at the fastest pace in more than a year for December.