The euro kept its gains against the dollar with the cross dipping through $1.3150 just after the London open. Euro-dollar had touched $1.30 on Thursday so the single currency has managed to recover forcefully. However, it remains vulnerable to reverses in sentiment and the IMF warning over execution risk in Greece over the weekend is a reminder that the eurozone sovereign debt crisis has not ended yet. Some are already switching their attention towards Portugal where we expect the 3-year IMF programme to be extended at the very least, even if a default could be avoided for now.
The pound also rallied against the greenback with cable stabilising around $1.5850. We suspect that sterling will not get much of a lift from the rise in the Right move house price survey in March as this reflects the end of the first homebuyer stamp duty tax holiday and is likely to unwind in April as the deadline passes.
Warm weather helped boost German construction by 6.5% in January, which should be more than enough to offset any fall from Spain. We therefore look for a 1% rise in eurozone construction output, which would mark its third consecutive rise and the strongest seen since January 2011. Seasonal adjustment from weather effects can be large at the turn of the year so part of the strength will merely be seasonal factors rather than an underlying improvement.
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