The dollar was the major gainer yesterday as both the euro and sterling were weakened by yesterday’s flow of economic news. The euro weakened by over 2% on the day after overnight trading whilst the pound also lost over 1.1%. The weakened view of both the euro and pound took the lead of flat US manufacturing and industrial production data. The Empire State manufacturing index came in at -7.8 against the expected 13.0 number. Meanwhile Industrial Production showed marginal growth at 0.1%. Meanwhile overnight news broke of Senator Charles Schumer’s intentions of reintroducing legislation aimed at forcing China to raise the value of its currency. The measure allows US companies petition for duties to be placed in Chinese imports to offset the trade advantage given by the weak yuan.

The main data focus will be on the US unemployment claims at 13:30, expected to show unchanged growth in claims of 0.2%. And then at 15:00 the Philly Fed manufacturing index is expected to show a reading of 7.1

GBP

Sterling dipped by 1.1% against the dollar yesterday but gained against a weakened euro by 0.8% on the day. The economic outlook was weak despite an overnight boost to consumer confidence. At 00:01 on Wednesday morning the Nationwide consumer confidence reading came in higher than expected at 55 (the market was expecting a reading of 41). This early boost was largely offset by poor UK job sector data at 09:30. Although the unemployment rate remained unchanged at 7.7%, the real damage was done by the surge in the claimant count. The claimant count was expected to show a growth of 7.7 thousand but came in far worse at 19.6 thousand. This shows again just how flat UK economic growth is, take into account Tuesday’s inflation data showing CPI wedged at 4.5% and it is easy to see the Bank of England’s dilemma over interest rates. It appears that at least short term the need for economic growth is stopping any interest rates geared to cap inflation.

The only significant economic data in the UK today is Retail sales at 09:30. This is expected to show a monthly drop of 0.5%.

EUR

The euro took a metaphorical battering yesterday as the market seemed to view the lack of a Greek bailout and the downgrading of Greek credit rating as a serious risk to the current outlook of the single currency. Moody’s had downgraded the Greek credit rating to CCC, which as close as it can get to defaulting on debt. Previously the euro had looked strong in view of the current interest rate scenario in contrast to the other majors, but the market has put the current sovereign debt crisis more into perspective. On the day the euro slipped by over 2% against the dollar and by 0.8% against the pound.

The main data focus for the Eurozone will be inflation data at 10:00. The market is expecting to see the Year on Year view of CPI and Core CPI as unchanged at 2.7% and 1.6% respectively.

EUR

The Euro has been rocked this week as fears of a Greek sovereign debt default escalated and worries over possible contagion intensified. The absence of economic data on today’s European calendar leaves the door open for sentiment trends to remain in control of currency market price action. This suggests continued gains for safety-linked currencies at the expense more sentiment-sensitive pairings most notably the commodity linked ones (NZD/AUD/ZAR).

Jean-Claude Juncker – Luxembourg’s Prime Minister and head of the Euro Zone group of finance ministers – said making private investors assume a degree of losses on Greek debt as part of a second round of aid would “risk contagion” and carry “unpredictable consequences”. Most ominously, Juncker said progress on resolving the Greek crisis is “extremely difficult”. His comments appeared in German newspaper Tagesspiegel.

Meanwhile, former Federal Reserve Chairman Alan Greenspan said there is a high probability of a Greek default – qualifying such an outcome as “close to certain” and likely to happen sooner rather than later – while warning that contagion beyond the Mediterranean country’s borders was a possibility. For their part, the markets are putting the probability of Greek default at 79.7 percent according to what is being priced into credit default swap (CDS) rates.

As mentioned there is little notable European data today save for EU & Italian Trade Balances.

USD

The US Dollar outperformed its counterparts yesterday and overnight as investors flock toward the safe haven currency for a consecutive session. As fears spread throughout Europe, it appears worries over contagion and the possibility of Spain together with other peripheral nations feeling the burden of Greek woes, despite the IMF looking closer to coming to a deal to help the indebted republic . With this issue continuing to linger, there is the distinct possibility that we could see further Dollar strength as investors detach riskier assets and liquidate into safe havens. Currently reaching key psychological and technical levels on both EUR/USD and GBP/USD and the possibility that we could see profit taking at the end of the week, it will certainly be and important closing figure that could also set the trend for the upcoming weeks.