Urgency To Deploy Crisis Measures In Eurozone Begins To Recede

European Central Bank President Mario Draghi will turn his attention to nursing the euro region back to economic health this week as the urgency to deploy crisis measures recedes after three years. While policy makers will likely keep interest rates unchanged for now, the threat of unlimited bond purchases has bought time to focus more on ending the region’s looming recession.

Draghi and European policy makers are returning to work with the turmoil that has ravaged the region’s bond markets at bay. Even so, they face potential pitfalls arising from widening debt in Spain, next month’s election in Italy and continuing austerity in Greece.

GBP/USD
Prime Minister David Cameron predicted a difficult year for the U.K. economy that will require maintaining the current mix of low interest rates and budget-deficit reduction. Cameron indicated that he would like to stay in office another seven years, even as an opinion poll suggested his Conservative Party will lose power in 2015.

To keep borrowing costs down, the coalition government must sustain a “credible strategy” for controlling the budget deficit, that’s the absolute key. The real test is what are the interest rates the rest of the world is demanding in order to own your debt, and our interest rates are extremely low, the lowest they’ve been really for centuries.

USD/JPY
The yen traded near a 2 1/2 year low as speculation grew that Japan’s Prime Minister Shinzo Abe will ramp up efforts to spur growth, paring demand for refuge assets. Demand for the yen was supported after a technical gauge showed it was the most oversold against the greenback in a decade. The yen weakness against the dollar may take a little breather; the yen has been looking oversold above 85 per dollar. Japan’s currency was little changed at 88.06 per dollar.

USD/CAD
The Canadian dollar posted its biggest gain versus its U.S. counterpart in almost five months as employers in December added almost twice the number of jobs forecast, lending weight to the government’s view that business investment will fuel an economic rebound. The currency ended the week higher versus the majority of its 16 most-traded peers after a report yesterday showed Canada’s unemployment rate unexpectedly fell to a four-year low in December and hiring rose for a fifth month.

Policy makers project employers to lead the nation out of a slump that slowed annualized growth to 0.6 percent in the third quarter. The Canadian dollar gained 1 percent this week to 98.72 cents per U.S. dollar.