Currency Update – Friday 12th February

Currency Update – Friday 12th February

The news channels seemed pretty sure that yesterday's EU leaders summit was going to produce some kind of rescue package for Greece, almost presenting the conference as a meeting to do so, however the meeting was a regular scheduled one, and the Greek problems were only added to the agenda late on. The markets may not have been as optimistic as the broadcasters, however what eventually came out of the meeting managed to disappoint almost everyone; there was no concrete offer of help, instead the EU has said that it will monitor the situation, calling on the IMF to help, and gave a vague promise of help in the future if needed. The EU seems confident that the plans that Greece are already implementing will be enough to cut their deficit, so for now all eyes attention will be on Greece (with perhaps a few glances thrown towards Portugal, Spain, and Ireland), to see if they can overcome some of the vitriolic domestic opposition to their budget cuts.

The papers are reporting that it was Germany who opposed any explicit rescue package, while the French were all for it, and today's Eurozone GDP figures may explain why, with Germany's economy stalling at 0% GDP growth, while the French have grown at 0.6% for the 4th quarter last year. The overall figure for the Eurozone will be given later on, and is expected to be around 0.3%, but for now the GDP data from the Eurozone's biggest economy, coupled with the lack of explicit support for Greece have driven the Euro lower, and allowed the Pound to make some significant headway pushing up above 1.15 in this morning's trading.

The boost to the Pound hasn't just come from Euro weakness, but also from an overall rise in global optimism, boosted by better than expected US jobless claims figures, as well as some benign Chinese inflation figures, which actually dropped back from the previous month, and have calmed fears that the monetary and fiscal tightening seen recently from the Chinese government will continue. The general boost in risk appetite has allowed the Pound to shoot up above 1.57 against the Dollar. Sterling benefits from a rise in global confidence, but other currencies tend to benefit even more, and the Australian Dollar has seen a strong rise based on the rise, as well as some very good Australian employment figures, which have raised forecasts for a rate rise next month, which has brought the Pound down to below 1.77 against the Australian Dollar.

We've already had Germany and Frances GDP figures, so the overall Eurozone figure released later today is unlikely to offer many surprises and will stay around the forecast of 0.2%-0.3%. There is also Eurozone industrial production, which isn't likely to impress if Germany's factories have not managed to push growth higher. Later in the day we get a US confidence measure, which may just add to the overall return of optimism, and for now the Pound seems to be on the front foot going into the weekend.

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