YB Currency Update – Wednesday 3rd February

YB Currency Update – Wednesday 3rd February

Risk appetite has been receding over the past few weeks as the markets feared the effects of Chinese fiscal tightening and the prospects of Greece having to withdraw from the Euro, along with the EU, seemed to be increasing. Over the past few days there has been some signs of risk appetite returning, helped by the strong GDP figures from the US last week, and further boosted by the broad growth shown in manufacturing surveys, in which even the UK played it's part. There has also been some reduction in the fears for the Greek sovereign debt. with the cost of borrowing for the Greek government starting to tentatively reduce, although they still have to pay more than 3.5% over what Germany pays for it's debt. Today is an important day for Greece's prospects, as the EU is to make a judgement on Greece's current attempts to get borrowing under control, with more emergency measures announced by their Prime Minister last night. Eurozone countries have rules on how they are to run their budgets, and although Greece aren't alone in falling outside of these rules, they are the most egregious example, borrowing over 4 times more than the rules allow.

Risk Appetite, especially regarding the Euro, is likely to remain tentative until it becomes clear that Greece, along with other peripheral Eurozone states, have a clear and achievable path back to solvency. However the resumption of risk taking has benefited the Pound allowing it to climb back to around 1.6050 against the Dollar in this morning's trading, although with the fears over Greece receding slightly it has found gains against the Euro harder to come by, with the Euro also pushing up above against the Dollar and breaking back above 1.40, the Pound is still hovering around 1.1450 against the single currency.

We resume the busy week of data releases today with Purchase Manager's Index for the service sector released for the UK as well as the large Eurozone nations. The expectations are for a small shortfall from the previous reading largely down to seasonal factors, although with the manufacturing figures picking up so strongly there may be more momentum in the economy than the markets expect. If we do get a strong reading it would make an extension to QE even less likely tomorrow and give the Pound a further jump. The Eurozone figures are expected to tick slightly higher, although the devil will be in the detail as it is becoming clearer that there is an emerging split between core and peripheral Eurozone economies. If the EU do act as expected and approve of Greece's current plans to reduce spending, this could give the Euro some support and hamper any gains the Pound may receive from a strong service sector PMI.

No Comments

Post a Comment