The euro has managed to claw back some of its losses as a three day selling spree lost steam. However, doubts still remain whether the eurozone can contain debt problems.
Rumours that the EU are looking to be more proactive in dealing with Portugal and Spain than they were with Ireland, has sent the single currency back up to $1.3143 and €1.1885 against the US dollar and sterling respectively. The news has also tightened (very slightly) bond premiums in Portugal, Spain and Italy over their German counterparts. An announcement tomorrow from the ECB will help to clear up these rumours, although the 16-nation currency still remains vulnerable to more heavy selling.
Another angle on this could be that the EUR has fallen at such a rate the market has been caught short of euros and investors are taking a ‘breather.’ Expect to see further selling resume after the ECB meeting on Thursday.
More good news this morning about the state of the UK economy, as better than expected Manufacturing PMI data gave the pound a short boost. The index came in at 58 for November, greatly exceeding the market predictions of 54.8. This is a 16 year high for the index. PMI data from the construction and service sectors are due tomorrow, but it would seem that the UK recovery is gaining traction.
Tom Hampton
Analyst – Caxton FX
