European Uncertainty Looks Set To Continue This Week

Brits seeking to buy property in eurozone countries are getting the best value for

money in three-and-a-half years amid the continuing eurozone crisis.

Sterling has increased against the euro to levels not seen since autumn 2008 on the back of recent elections in France and Greece which caused heightened uncertainty over plans to tackle the debt crisis.

UKForex commentary:

Euro:

The last trading day of the week brought yet more negative headlines out of Europe with focus remaining on the financial health of Spain as the nation announced that it would likely need to revise its 2011 budget deficit higher, and the prevailing stress within the nations government bond market caused LCH Clearnet to request higher margins on Spanish government debt. As if that wasnt enough a report released on Friday showed that Spanish banks bad loans recently reached an 18-year high. Despite all of this, cautious optimism ahead of the G8 summit in Washington and position squaring ahead of the weekend saw EUR/USD finish the week off its lows and GBP/EUR continued to peel away from its recently posted multi-year highs, declining to a low of 1.2378 as investors took some profit on their short euro positions. GBP lost some of its lustre on comments from Bank of England MPC member Posen as the policy maker said his more hawkish than expected call to remove stimulus measures might have been premature. The G8 summit over the weekend has left investors somewhat disappointed with nothing concrete decided with regard to the Eurozone sovereign debt crisis and this is likely to hang over the single currency at the start of trading this week. The EU Summit on Wednesday and preliminary Eurozone PMIs on Thursday will certainly be important for the single currency but until then headlines out of Europe are likely to continue to be the most dominant driver of the EUR. Given how short of EUR the market currently is, positioning will also play a key role in euro price action this week. GBP/EUR opens this morning at 1.2383.

United States Dollar:

Widespread risk aversion drove sterling to a 2-month low of 1.5732 against the US dollar on Friday, capping off three consecutive weeks of declines in cable as investors continued to seek out safe haven assets amidst the ongoing turmoil in Europe. USD selling late in the day, possibly linked to central bank intervention, lifted GBP/USD off its lows but the recovery only extended as far as 1.5837. Whilst there were no economic releases from the UK or the US on Friday, Europe continued to dominate market sentiment and in particular Spain was once again in the spotlight as news emerged that worried customers of the UK unit of Spain's largest and most high profile bank to be recently downgraded by Moodys, Banco Santander, had withdrawn around 200 million from the institution on Friday, leading investors to question the vulnerability of the UK's financial sector to the Eurozones sovereign debt crisis. An interview with bank of England Policy maker and long-time dove Adam Posen on Friday did little to help the pound's cause as the MPC member said that the call that he made last month to reduce stimulus measures may have been premature given that the underlying UK economy might have been weaker than he originally anticipated. The UK central bank will remain in focus this week as the minutes from their last meeting are released. Investors will also be eagerly anticipating UK inflation and retail sales data later this week. Its a pretty light week for US data, so we continue to expect the greenback to take its cue from risk sentiment over the coming days. GBP/USD opens this morning at 1.5830.

Aussie and Kiwi Dollars:

The high beta commodity currencies continued to suffer under the weight of European uncertainty on Friday with AUD/USD and NZD/USD trading softly on the back of investors reluctance to load up on risk ahead of the G8 Summit over the weekend. Weakness in copper and oil and a somewhat disappointing Facebook IPO did little to lift risk sentiment on the day. GBP/AUD recovered from an early low of 1.5985 to touch a high of 1.6127 on Friday and price action in GBP/NZD was similar as the cross rallied from its midday low around 2.0765 to end the day just shy of 2.1000. Tier 1 economic data from Australia and New Zealand is light on the ground this week, so expect risk sentiment to continue to dictate price action in both the AUD and NZD. GBP/AUD and GBP/NZD open this morning at 1.6060 and 2.0862 respectively.

by: Mike Jones

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