Greek Respite

Yesterday’s EU summit proved to be eventful with 25 out of 27 EU states agreeing to the “fiscal compact”. Additionally, reports suggesting progress on Greek debt-swap talks have also aided the “risk on” trading sentiment in currency markets today. However, an announcement is unlikely to be made until negotiations on a new loan package are finalised and will keep markets fixated to headlines emerging from Greece. At home, data released earlier today indicates an improvement in consumer confidence for January, hinting towards a continuation of the festive mood after Christmas.

Pound Sterling – UK Markets

Sterling has convincingly breached the 1.5700 mark against the US Dollar amid market optimism that the British economy may avoid a double-dip recession. Earlier today, GfK NOP indicated that consumer confidence in the UK rose to the highest since June 2011. The rise came as a surprise given the worrying state of the economy following last week’s dismal fourth quarter GDP data. However, data just released indicates that mortgage approvals in the UK increased less-than-expected for December. The Pound is trading in a tight range against the Euro this morning as uncertainty over the outcome of the Greek debt talks has kept markets on its toes. At the summit in Brussels, Prime Minister, David Cameron, urged Europe to “get really serious” about jobs and growth.

US Dollar – US Markets

The US Dollar has dropped against the majors this morning as concerns over Greek debt crisis subsided, after Greek Prime Minister, Lucas Papademos, indicated that progress has been made in debt-swap talks with bondholders. Moreover, positive response to yesterday’s Italian bond auctions has aided risk appetite among market participants. Yesterday’s subdued US consumer spending data was in contrast to last week’s upsurge in Thomson Reuters/University of Michigan consumer sentiment index. The consumer confidence index, slated for release later today, is expected to climb to a reading of 68 for January compared to the level of 65.4 for December. On the contrary, weakness in the housing market is expected to continue as data due today is likely to indicate that US house prices declined in November. However, strength in manufacturing evidenced by the sharp improvement in the Dallas Fed manufacturing production index for January, has aided to tone down calls for additional easing.

Euro – European Markets

The Euro has staged a recovery against the US Dollar amid reports that a Greek debt deal is around the corner. Greek Prime Minister, Lucas Papademos, stated that he is “strongly committed” to reaching a debt-swap agreement with the country’s creditors. The eagerly awaited EU summit bore fruit with 25 out of 27 European Union states agreeing to a pact aimed at a stricter budget discipline and strengthening accountability. The European leaders have also agreed to the activation of the ESM for July 2012. Meanwhile, markets have begun questioning the refinancing ability of Portugal after the country’s government bond yields rose to a record high yesterday. This is in sharp contrast to yesterday’s successful Italian bond auctions. Moreover, data just released has indicated an unexpected decline in German retail sales for December, while unemployment rate in Germany eased a little to 6.7% for January. We expect the Euro to take cues against the majors from the news flow emanating from Greece.

Other Currencies – Highlights

The Japanese Yen declined against the Pound and the Euro this morning amid looming threat of a possible intervention by the Japanese Ministry of Finance to stem gains in the Yen. Additionally, receding market worries over Greek debt crisis also dampened the demand for safe haven currencies. Meanwhile in an action-packed day for economic releases in Japan, the outcome was mixed. Data indicated a better-than-expected increase in Japanese industrial production for December and an improvement in the manufacturing PMI for January. However, the unemployment rate in Japan rose to 4.6% for December, while housing starts indicated a sharp decline.