Euro Rebounds On Broadly Successful Greek Buy-Back

The dollar fell on Monday after the deadlock between Republican and the Democrat lawmakers in Washington, over how to limit the impact of the fiscal cliff cuts in January, seemed to worsen after accounts that both camps were too mistrustful of the other side to take the lead in making any useful concessions.

On the data front it was a quiet day, but there was plenty of data from China where Retail Sales continued rising over 14% and Industrial Production over 10% even though CPI undershot projections and rose to only 2.0% when 2.1% had been expected; nevertheless overall the figures showed China was not heading for the hard-landing everyone had feared. Overall risk appetite remained buoyant despite knocks. Tomorrow's highlight is the Trade Balance, with the FOMC Wednesday's big ticket attraction.

EUR
The euro rose on Monday after news that most of the 30bn in Greek bonds which the government is buying-back from the private sector in a deal which is part of its latest debt restructuring plan had been tendered by the Friday deadline, with only a small amount still outstanding, and the deadline pushed back to Tuesday. The news was seen as putting in place another of the conditions for Greece receiving the next bailout.

The euro had weakened earlier in the day on the news that Mario Monti, the Italian PM would be resigning, as this lead to fears he might be replaced by someone less euro-friendly, however, these concerns soon diffused after everyone realised that his technocratic government had always been a temporary appointment. Overall data was also upbeat, with German Exports rising by 0.3% when it had been expected to fall; the German Trade Balance falling less than expected to 15.8bn when it had been forecast to fall to 15.5bn and The Sentix Investor Confidence survey also rebounding more strongly than anticipated.

GBP
The pound rose on Monday as it increasingly benefited from inflows from being viewed as a new safe-haven both from the neighbouring eurozone crisis and fiscal problems in the U.S, due partly to views that it is a sustainable bet in the long-run. In addition, there was also a rebound in general risk appetite following a turnaround in sentiment towards the euro after fears that the news of Mario Monti's resignation would lead to his replacement by someone less euro-friendly, were eventually dismissed as overwrought.

On the data front, Lloyds Employment Confidence in November showed a drop in sentiment to -42 from -35 previously. Tomorrow sees the release of lots of Employment data, including Jobless Claims Change, which is expected to show a 5k rise.

JPY
The yen traded mixed on Monday as data overnight proved overall weaker-than-expected. Final figures for 3rd quarter GDP showed a fall of -0.9% q/q when it had been expected to recover to -0.8%, and -3.5% annualized when -3.3% had been expected, the Trade Balance deficit narrowed to 450.3bn in October, almost in line with expectations from -473bn previously. The Current Acount showed an improvement, with the surplus falling less-than-expected to 376.9bn from 503.6bn previously when it had been expected to fall to 230.9bn.

Earlier on Monday the news of a political change of guard in Italy initially supported the yen with a rise in safety-demand, but then the euro strengthened as the Greek bond deal took shape. The dollar weakened against the yen due to increasing doubts about the ability of the lawmakers in Washington to agree a bi-partisan deal on the fast-approaching fiscal cliff.