Euro is recovering slightly
The Greek government reportedly drafted an agreement on the bailout deal to be put to political leaders yesterday afternoon. However markets (hopefully) wait hence sentiment remaining somewhat buoyed as overnight Asian indices have performed positively with the rally in Asian indices lifting local currencies. Indeed, globally currencies have made gains against the USD with commodity currencies leading the way, particularly the New Zealand and Australian dollars.
Early releases of December German Current account and Trade data should temporarily boost the euro in what we would expect to be a relatively subdued day.
The decline in shop price inflation is important as the Bank of England has long argued that inflation will fall quickly through the first half of this year as the VAT increase fades out. This does make an extension to Quantitative Easing (QE) tomorrow more likely. We look for a £50 billion increase; with a further £25 billion possible in May should the recovery continue to remain soft. More QE = weaker pound!
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