The Pound made gains against the Euro while declining against the Dollar as risk aversion drives investors away from European currencies. However, the sterling’s drop over the past week has been less precipitous than that of the EUR, down only 1.8% from its recent highs versus 4.1% for the EUR, as demand for the relative safety of British government bonds provides support. In the coming days, investors will take note of British CPI, RPI, labor market data, and retail sales. While general risk aversion will continue to weigh on the pound in the near term, its role as a primary alternative to the EUR will provide downside support.
The Dollar made gains against the Euro and the Pound on waning risk appetite. Global financial markets ended last week generally higher after a tumultuous week that saw new leaders installed in both Greece and Italy.
While the moves were initially cheered, disappointing results from an auction of Italian 5-year bonds this morning have markets again fearing the worst. Meanwhile, investors remain on edge in the US as the so-called congressional “super committee” set up in the latest budget deal appears to be deadlocked just days before a deadline by which the group has been tasked to cut billions in government spending; or else, more than $1T in automatic cuts will kick in.
The economic slate this week is quite full with PPI, retail sales, and empire manufacturing all due on Tuesday. The middle of the week sees CPI and industrial production both on Wednesday, and housing starts, weekly jobless claims and Philly fed all on Thursday.
The week closes with leading indicators on Friday. While US inflation data will be closely watched with expectations for further easing of price pressures, investors will remain largely focused on the developing Eurozone debt crisis. The political impasse over budget cuts brings the US’s own struggles with debt into the spotlight, the USD’s role as a “safe-haven” currency will likely keep it well supported in the near term.
The Euro declined against the Pound and the Dollar as optimism over new leadership in Greece and Italy gives way to the difficult challenges facing both countries.
The single currency fell to lows just above $1.36 as German Chancellor Angela Merkel called the debt crisis Europe’s “toughest hour since World War II.” In Greece, new Prime Minister Lucas Papademos faces opposition from conservatives over any toughening of austerity measures and expected demonstrations Thursday. Meanwhile, new Italian Prime Minister, Mario Monti, replaced the widely unpopular Sylvio Berlusconi as jubilant Italians celebrated. Nevertheless, Italy paid its highest yields since euro membership–6.30% to sell 5 year bonds, highlighting the difficult task ahead for Monti, a former EU commissioner.
Amid the tumult, Eurozone industrial production fell 2% in September on a further sign of looming recession for the region. Given the difficult choices facing the region, Europe’s new leaders appear to have a very small window to maintain market confidence before the euro again comes under pressure.
Data released 15.11.2011
UK 09.30 DCLG House Prices (September)
UK 09.30 CPI (October)
RPI
EU 10.00 Trade Balance (September)
EU 10.00 Flash GDP (Q3)
US 13.30 Empire State – NY Fed Index (November)
US 13.30 PPI (October)
Ex Food & Energy
US 13.30 Retail Sales (October)
Ex Autos
US 15.00 Business Inventories (September)