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Political Pressure on EUR

Political Pressure on EUR

EUR/USD broke below the 1.30 level yesterday as the Greek political crisis rolls on and in this context we expect the EUR to remain under pressure; with French presidential election winner Hollande awaiting inauguration, his pledges to increase state spending and renegotiate the ECB’s independence is unlikely to instil confidence in the market and the longer uncertainty surrounds the formation of a coalition government in Greece the more the Euro will lose support.

Meanwhile Merkel has reiterated her view on deficit financed growth programs, stating that the eurozone needed sustainable growth through structural reforms and a better use of existing support funds rather than short term growth boosting deficit financed programs. She further noted that there was room for compromise with Hollande although would not deviate from her core principles on the matter.

In the UK we focus on the BoE rates meeting with the announcement tomorrow; whilst any move in interest rates is extremely unlikely there is still scope for movement in quantitative easing.

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