GBP/EUR has regained some ground after the increment to £10.8bn in the UK’s Public Sector net Borrowing in December, coming in lower than expectations (£12.2bn). The UK budget deficit in December rose to £13.7bn against a forecasted £14.9bn. In the April-December period the deficit was also lower than expected, rising to £103.3bn vs. £114.6bn.

In a slightly more long term view UK Inflation expectations for next 5-10 years have fallen to 3.2% in Jan from 3.4% in Dec - this is likely to have next to no impact but in theory does make GBP less attractive in the long term.

Meanwhile in Japan the BoJ says it will continue to carefully monitor the impact of overseas uncertainty on the Japanese economy. The central bank also stated that a zero interest rate policy will remain in place until price stability is in sight. The BoJ said it lowered its forecast for real gross domestic product to a 0.4% contraction for this fiscal year and a 2.0% gain for the next year.

The EUR/USD rallied briefly to 1.3062 high ahead of the Spanish bond auction results, but returned to 1.3000 psychological level where it is still standing. Spain sold €2.51B worth of bonds out of a targeted €1.5-2.5B. The 3-month paper is paying 1.285%, while the 6-month pays 1.847%, both lower than previous auction’s 1.735% and 2.435% which is good news for EUR.

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