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Despite positive Signals from Germany the EURO stays weak

Despite positive Signals from Germany the EURO stays weak

A spokesman from Fitch called on the ECB to make greater efforts to limit bond yields in stressed countries and to allow the EFSF to operate as a bank. Their view is that while a collapse of the Euro is unlikely, it still remains possible and would be “cataclysmic”.

Investor demand was strong yesterday for Germany’s issue of €4 billion 5 year bonds which got bids of nearly €9 billion at an average yield of 0.90% as the flight to safety continued in the Eurozone. Meanwhile, a flash estimate of German GDP for 2011 confirmed growth of 3.0% for the year. However, the economy is likely to have shrunk by 0.25% in the final quarter.

In the UK, the Office for National Statistics reported that the trade deficit for Q4 2011 was slightly wider than expected at £2.6bn as exports fell to countries outside Europe, while imports from outside Europe rose to a record high.

Sterling came under pressure yesterday falling over 1% against the US dollar following the Fitch comments which turned the markets firmly “risk off” ahead of the BoE announcement this morning and speculation of further Quantitative Easing. In early morning trading GBP/USD has dipped below the $1.53 level.

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