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Euro Gains as Spain’s Borrowing Costs Decline

Euro Gains as Spain’s Borrowing Costs Decline

January appears to be a bumper month for Spain and some of the euro zone economies most in need of debt financing, with governments and companies flooding the market with bonds that have sold at significantly lower interest rates than just a few months ago. Since September borrowing costs have come down significantly, in large part thanks to a pledge by the E.C.B. to buy bonds of countries like Spain and Italy in sufficient quantities to bring the costs down to sustainable levels. The promise of support alone was enough to reassure investors: the central bank has not had to actually buy any bonds under the program.

Meanwhile, British retail sales posted a surprise monthly fall in December, dashing hopes that Christmas shoppers would provide a last-minute boost to an economy on the verge of another contraction. The Office for National Statistics said on Friday sales volumes including automotive fuel fell 0.1 percent on the month to give an annual rise of 0.3 percent – confounding economists’ forecasts for a 0.2 percent monthly increase. For some retailers this Christmas, a period when many make as much as half of their annual profit, was their last. Well-known British chains have gone into administration:  92-year-old music retailer HMV, Blockbusters and Jessops.

On the other hand, commenting on yesterday´s US Employment and Housing figures, Dominic Rossi, Global Chief Investment Officer for Equities at Fidelity Worldwide Investment believes that markets will be reassured. Unemployment benefit claims have hit a five-year low in the US while data also showed a continued surge in house building. A separate report revealed housing construction jumped 12.1 per cent last month.

In other related news, it is snowing in the U.K – very surprising, especially in the month of January!

On the FX Markets, GBP/EUR is getting ever closer to the key 8345-50 area, but it is just above here where the larger stops are in place. Much of this can be attributed to the Spanish auctions over the last few weeks, with today’s results also ringing a positive note to send the EUR higher once again. EUR/USD is targeting 1.3403 once more, but is facing strong selling interest from 1.3370. After an attempt to hold the vaunted 1.6000 level earlier during overnight trading, the GBP/USD finally gave way and plummeted nearly 30 pips during European trading to trade near session lows at 1.5969/70 at the time of writing.

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