Good bye Trichet

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Trichet leaves the presidency of the ECB today with Europe still full of unresolved matters. As it has been pointed out by his colleague at the ECB’s Executive Board, Juergen Stark, Trichet has been “the great crisis manager in Europe,” His substitute, the Italian Mario Draghi, will have to deal with the first CPI and interest rate announcements this week.

Sterling took a nose dive against the euro last week on the back of decisive action from the EU summit and although the reaction of this announcement was short lived in the exchange rates Sterling hasn’t quite regained its position against the euro. Thursday saw GBPEUR rates fall from 1.15 to 1.1330 which equates to 2 percent in less than 24hours and current rates are hovering around 1.1420.

In some positive news from the Euro zone Germany has found itself 55bn euros (£48bn) richer after discovering an accounting error at one of the banks it nationalised in 2009. The finance ministry said that the country now expects its ratio of debt to GDP to be 81.1% for 2011 which is 2.6 percentage points lower than previously forecast.

In the UK tomorrow eyes are on the GDP announcement for the third quarter. A strong result could have a favourable impact on sterling.

The Global Markets awaken this morning with the Bank of Japan (BoJ ) intervention to weaken the yen after the Japanese currency hit a post war high. As a result the yen went down by nearly 5% against the US dollar and by almost that much against the pound. Japan is clearly hoping to emulate the success of the Swiss National Bank (SNB), that after interviewing to devaluate the franc finally announced two months ago that it would do whatever it took to hold the euro/franc exchange rate above 1.20. The BoJ has not gone as far as the SNB, however Japan's finance minister, Jun Azumi, said afterwards "I will continue to intervene until I am satisfied."

The BoJ action took the US dollar higher across the board, simply because it is likely that the bulk of the BoJ's buying was in dollar/yen. The US dollar was also helped by some good economic data at the end of last week.

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