Despite disappointing data from both the UK and US, the euro has not been able to make up any lost ground.
Sterling did take a slight knock this morning as the UK’s Services PMI figure came in at 49.7, well below the expected result of 52.9. However, any losses were soon regained and the pound hit an intraday high of €1.1855 against the single currency.
Aside from some slightly disappointing employment data, the greenback continues to climb. The euro is now just a shade away from collapsing below $1.30 and who would bet against the move coming as early as tomorrow?
The 17 nation currency continues to go from bad to worse. What would normally be bullish news, a successful Portuguese bond auction, turned sour as the premium Portugal will have to repay went up by well over 100 points. The news that the EU is potentially going to issue Europe wide bonds (rather than country specific) smells horribly like the actions bankers took in combining securities that got the world in this mess in the first place. Next week Italy and Spain will both have their first bond auctions of 2011. It will be very interesting to see what premium they will have to pay to secure finance. All-in-all, this storyline has legs and will dominate most of 2011.
In other news, well not that far from the apple tree, China’s shopping spree for entire nations (behind FT paywall) continues as they pledge to buy €6billion of Spanish debt. This is being viewed as a simple engagement to try to open up foreign markets to Chinese exports. However, with their cheaper yet comparable products, ownership of foreign government debt, vast currency and commodity reserves, could this be just another move to knock America from the top of global economics?
Tom Hampton
Analyst – Caxton FX
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