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The Pound is lower against both the USD and EUR after the approval of the Greek bailout package prompted investors to assume riskier positions. Nevertheless, sterling remains within its recent ranges after the British government budget surplus widened by more than expected with demand for the relative safety of British government assets remaining relatively high. In the week ahead, investors will pay particularly close attention to the most recent reading of British GDP due on Friday with the consensus expecting a 0.2% contraction QoQ.
The Dollar begins the week mixed against its major counterparts as all eyes are on Greece after European officials approved a second bailout package for the debt stricken nation. However, serious concerns remain that while the infusion of cash will avert an imminent disorderly default, the measures do little to address the underlying economic deficiencies that put the region’s weaker economies in such a predicament in the first place.
As such, the USD remains relatively well entrenched within its recent ranges, albeit towards the lower end with little major economic data due to provide additional support. Investors will take note of key housing and labor market data this week with mortgage applications and existing home sales both due tomorrow, and weekly jobless claims and the house price index slated for Thursday. The week closes out with University of Michigan confidence and new home sales on Friday. While the European developments are a welcome relief, the USD’s appeal will remain largely intact in the near term with its “safe-haven” status drawing demand.
The Euro was supported after Eurozone officials threw Greece a lifeline following marathon negotiations yesterday, agreeing to terms for a rescue package. The euro revisited recent peaks vs. the dollar at $1.3296 as relief that Greece will be able to avoid disorderly default helped the single currency rebound from last week’s lows below $1.30. Under the terms of the EUR 130 billion rescue package, Greece committed to additional austerity measures while bondholders agreed to take larger losses. Bondholders will take losses equating to 53.5% of the bond’s value, up from 50% previously. Greece also agreed to permanent surveillance of its budgetary progress by external authorities to ensure measures are carried out. Although the rescue package enables Greece to avert default ahead of its next round of bond payments in March, many hurdles remain. Euro gains were tempered today by doubts that Greece will be able to implement the deeply unpopular austerity measures as elections loom in April. Additionally, with Eurozone GDP reported declining -0.4% in Q4 last week, the region faces stiff hurdles in overcoming its challenges.
Data released 22.02.2012
UK 09.30 Minutes of 8th – 9th February MPC Meeting
EU 10.00 Industrial Orders (December)
US 15.00 Existing Home Sales (January)
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