EUR falls further GBP/EUR 1.1871
The Euro has continued to weaken overnight at the start of the week’s trading, as more details of the Irish bailout emerge, and expectations (along with political pressure) increase for the Iberian peninsula to follow suit. European finance ministers and the IMF on Sunday night agreed a EUR85bn bail-out for Ireland, amid hopes that the show of solidarity will be enough to calm market fears of a new banking crisis. Ireland will receive EUR10bn in immediate assistance to prop up its indebted banking system, with a further EUR 25bn in ‘contingency funding’ should the country’s banks need it. A further EUR50bn is available to help the government fund it’s ballooning deficit. The rescue deal means two of the Eurozone’s 16 nations have now come to depend on foreign help. If Spain and Portugal are added to this list that will mean a quarter of Euro members are essentially being propped up by their counterparts. With this in mind, despite the weakening of the Euro over the last 3 weeks it is somewhat surprising that the fall has not been more dramatic. The return to the markets of the US from last week’s Thanksgiving season may provide some more dynamism, though after this weekend’s revelations it’s safe to say that most attention in the states will be firmly focussed in Washington rather than Wall St.
For the reasons above, the ECB meeting this week may have a little more attention on it than previous months (though this would not be difficult). Although the ECB Council Meeting is, as ever, expected to leave rates unchanged at 1.0%, Trichet will come under scrutiny in the usual post-meeting press conference, where he can expect to answer questions on the continued strains in the Eurozone banking system, whether the ECB is still considering winding down its liquidity operations in the New Year, and he will obviously will be probed about ECB support for the Irish, Portuguese and Spanish banking systems. Comments during the Q&A session could certainly shake currency markets. The MPC meeting will follow next week.
The US returns this week after its Thanksgiving absence, limiting Monday data to just the Dallas Fed Manufacturing index for November, which will leave the market looking for any clues as to how the shopping season has started. By Wednesday however, markets will start to focus on Friday’s all important nonfarm payrolls survey. Consensus is for a 145,000 increase in November payrolls, which would mark the second consecutive month of expansion for the first time since May. Private payrolls are expected to grow at an even higher rate as public employment continues to fall as states struggle with financial deficits. Wednesday evening also sees the publication of the Fed’s Beige Book, its anecdotal report on economic activity. Given the decision to extend QE, we expect that it will remain moderately downbeat on activity, though the largely positive data since QE2 may have surprised a little. Consumer confidence and manufacturing figures also feature this week.
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