Morning Report

Richard Driver, Analyst The euro made some minor gains last night after the majority of EU states agreed to a German-inspired deficit control treaty at the EU summit in Brussels. This is seen as the first step towards a fiscal union, aiming to strengthen confidence in the Euro-zone. EU leaders also agreed on introducing the €500 billion European Stability Mechanism in July – a year earlier than planned, to help back heavily indebted states. These small steps to help pave the way out of the debt crisis were overshadowed however by yet more quarrelling from EU leaders over Greece and its economic management. The euro may again be under broad selling pressure today with Greece and Portugal in focus.
STERLING/EURO: The euro benefitted from some strong rhetoric yesterday, but Greece and Portugal will be the main concern today. Bargaining with Greece over its economic management, and a debt write-down seemed to overshadow the positive aspects of yesterdays summit. The Greek PM Papademos will hope to complete on debt-swap talks with bondholders by the end of this week with the country facing a 14.5 billion euro payment by 20th March. Concerns over Greece and its debt write-down have led to fears that Portugal may follow suit with the yield on 10-year Portuguese bonds reaching a record high yesterday. This will again be in focus today.	FORECAST
STERLING/US DOLLAR: The pound is currently trading up against its US counterpart as risk appetite increases on euro talks. Greek PM Papedemos said that there had been significant progress on PSI talks, with the market now anticipating that a restructuring deal on Greek debt may be achievable by the end of the week. There will be no guarantees however, and the market will be reluctant to buy into this rhetoric too far given recent history. The pound is also benefitting today from month end selling of the dollar for portfolio adjustments. The upside potential for this pair will be limited however unless there are solid decisions on Greek debt.	FORECAST
EURO/US DOLLAR: The euro is benefitting from increased confidence in the Euro-zone as most countries agree to tighter budget controls. Risk appetite tentatively increased during Asian trading as signs that EU leaders are finally making decisions to help contain the European debt crisis. European stocks are also up this morning, weighing on the safe-haven dollar. This pair should trade in a fairly tight range, with the upside potential for the euro restricted unless Greece are able to clinch a restructuring deal.	FORECAST
STERLING/AUSTRALIAN DOLLAR: The Australian and New Zealand dollars gained as Asian stocks rallied, boosting the allure of higher-yielding currencies. The Australian dollar rallied from one-day declines as Asian stocks advanced after European leaders signalled they’re taking steps toward resolving to the region’s debt crisis. This was helped after Greek Prime Minister Papademos stated that he was strongly committed to reaching a debt-swap accord. The Aussie also rose after a gauge of Australian business confidence climbed to a seven month high. This pairing is trading below 1.48 this morning.	FORECAST
STERLING/NEW ZEALAND DOLLAR: New Zealand’s dollar climbed against 15 of its 16 most-traded peers after a report showed home-building approvals rebounded in the nation. New Zealand dollar rose after home-building approvals increased 2.1 percent in December from the month before, when they dropped a revised 6.2 percent, the statistics bureau said in Wellington today. The Kiwi also enjoyed some strength off the back of Asians stocks advancing. This was caused by the European leaders indicating that they are taking the necessary steps to resolve the sovereign debt crisis. This pairing is currently trading below 1.91.	FORECAST
STERLING/CANADIAN DOLLAR: The pound is trading down on the Loonie today as Canadian GDP is anticipated. The currency was supported by wide speculation that the US’s accelerating growth would mean higher demand for Canadian exports. Todays GDP figure from Canada will be the main focus for this pairing today, with growth of 0.2% expected. Anything less than this will see this pair appreciate.	FORECAST
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