The Euro gained against the majors last night on prospects ECB loan operations will spur risk appetite.
Sterling / Euro and US Dollar exchange rates
The Pound rallied modestly against the Euro exchange rate yesterday, as the German parliament prepared to vote on the Greek debt deal, which undermined the Euro to a degree although the market very much remains in a downward trend, after reaching a 12-week low last week. The UK currency also rose towards near-term resistance in the region of 1.5850 versus the U.S Dollar, as risk sentiment continues to play a major role.
Global stocks were actually down on the day, as Moody’s Investor Service said there is still a high risk of a Greek default. The Canadian Dollar declined by the most in over two weeks versus the Dollar and lost ground versus a host of currencies, as stocks slipped and commodity prices like crude oil fell, reducing demand for the Loonie and higher-yielding currencies as a whole.
To that end, the Australian Dollar exchange rate weakened from a seven month high versus the Yen, as risk appetite weakened through the course of the day, as concerns re-surfaced that Greece will face difficulty in resolving the debt crisis. There was a sense of greater optimism surrounding the UK economy with markets anticipating another relatively firm set of PMI releases for February.
This was important in curbing selling pressure on the Pound with the latest manufacturing data due for release on Thursday. However, the potential impact of better-than-expected data was offset by a stark warning from the Chancellor George Osborne over the state of government finances. The defensive demand for the Pound as an alternative to the Euro has waned in recent weeks and the easing of any immediate fear surrounding the Euro-zone outlook brought the market back down under 1.18 last night.
The renewed sense of stability for the Euro exchange rate came after the German Chancellor Angela Merkel won a parliamentary vote on Greek aid, after warning lawmakers that pushing Greece out of the Euro would risk “incalculable” damage. The move certainly went against public opinion but brought with it a sense of optimism that a Greek default will be avoided.
The ballot showed dissent in her coalition government growing but the majority of the Bundestag backed the €130 billion bailout package with 90 members voting against it. Merkel justified the decision but acknowledged that questions over Greece remaining in the Euro had an element of credibility. She said, however, that a failure of the Euro might endanger the EU and the global economy.
Euro / US Dollar
The Euro exchange rate gained against the majors last night on prospects ECB loan operations will spur risk appetite. The single currency bounced back following an earlier decline against the Dollar and the Yen, amid speculation the ECB’s long-term refinancing operation will calm concern that Europe will struggle to contain the sovereign debt crisis.
The result of the German parliamentary vote last night has increased demand for higher-yielding currencies. The Australian Dollar rose strongly against the majors following an earlier decline, as global stock markets advanced. The Euro hit resistance in the region of 1.3480 and the single currency remains in the ascendancy, after data showed that Euro-zone money supply growth came in better-than-expected.
There is still a sense of unease surrounding the Greek debt situation with further calls for Greece to be offered a package to leave the Euro and rebuild their shattered economy. As expected, Standard Poor’s cut Greece’s rating to selective default. In the U.S, the pending home sales data was stronger-than-expected with a 2% increase for December.
EU 10:00 – Economic Sentiment (February) – Industrial / Services / Consumer
U.K 11:00 – CBI Distributive Trades Survey (February)
U.S 13:30 – Durable Goods (January)
U.S 14:00 – Case Shiller House Prices (December)
U.S 15:00 – Consumer Confidence (February)
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