Euro Periphery Once Again The Focus

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The ideological battle between the two parties on either side of the European debt problem caused the euro to weaken once again on Friday as an impasse seems all the more likely. Fresh from his post interest rate decision Trichet gave a press conference on Friday in which he stated that a restructuring of Greek debt was out of the question. This was later clarified by the ECB to “excludes all concepts that are not purely voluntary or have any element of compulsion, that entail any credit event or that entail any default or selective default”. i.e. no haircuts for bondholders. This puts him in the opposite camp from the Eurogroup’s Juncker and German Finance Minister Shaeuble who both agree that in the absence of Greece being able to pay back its debt then a new bailout package is inevitable and, as part of that, some private participation must be made.

This cocktail of uncertainty was mixed with a feeling on Friday that the global growth picture is looking all the more precarious and risky assets were sold heavily across the board. The euro slipped by over 1 per cent against the US dollar whilst also falling against the pound by 0.2%. Sterling was unable to make any ground on Friday as a result of the shocking industrial and manufacturing production numbers that were released. Industrial production was down by 1.7% MoM while manufacturing was down 1.5% with the participants saying that the extra bank holiday in April alongside the problems following the Japanese earthquake caused the slow down.

The latest GDP reading from the National Institute of Economic and Social Research suggests that our estimate of a 0.2% reading for Q2 GDP is on track. The think-tank reported on Friday that the growth estimate was +0.4% for the three months to May versus +0.1% for the three months to April. Sterling was unmoved on the news.

While today is quiet on the data calendar we are at the start of a busy data week, something we expect to be weak for the pound. Tomorrow we have the latest reading of CPI in the UK followed by unemployment on Wednesday and Thursday’s retail sales number. Data from the US comes in the form of retail sales (Tuesday) and consumer confidence on Friday.

There are also a couple of key debt auctions this week with Spain selling 12- and 18-month bills and Greece offering up to €1.25bn in 6-month bills. Portugal will auction on Wednesday while Spain doubles up with a second on Thursday. These will be key to reading the market’s mood towards peripheral debt following Friday’s shenanigans

Indicative Rates Sell Buy
GBPEUR 1.1316 1.1342
GBPUSD 1.6236 1.6261
EURUSD 1.4333 1.4355
GBPJPY 130.44 130.70
GBPAUD 1.5382 1.5407
GBPNZD 1.9957 1.9985
GBPCAD 1.5849 1.5877
NZDUSD 0.8127 0.8147
GBPZAR 11.01 11.06
USDZAR 6.7766 6.8063
GBPPLN 4.4409 4.4671
EURJPY 115.19 115.45

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