FX news and analysis 23rd Jan

USD

The dollar fell on Monday after risk appetite remained high following a better-than-expected German bond auction where 2.54bn of 12-month bills were sold, attracting a steady demand of 5.53bn bids, with yields falling to an average of 0.07% versus last October's 0.346%. European banking stocks also rose helping spur sentiment on. Risk currencies were also supported by positive feedback from Greek debt swap talks with private bond-holders which it was reported were close to "concluding." The dollar saw continued weakness overall and is moving to quite low levels now with some fearing a change of trend. The next big news item for the dollar is on Wednesday at the FOMC, which because it is the first meeting of the year will carry heightened importance as the Fed will also outline their outlook for activity, growth and jobs for 2012. Obviously if they ere to the dovish then weakness may increase whereas if they are hawkish then the dollar could start to mount a recovery.

EUR

The euro continued to rally higher, reaching highs of 1.3038 after reports from the negotiations between private bond holders and Greece led investors to believe that they were close to reaching an agreement in which the private sector was prepared to shoulder a 65-70% haircut to help Greece with its refinancing. E.U Finance Minister's met in Brussels on Monday to decide the terms they would accept as part of a deal for another bailout for Greece, as well as new budget rules and proposals of how to 'firewall' the euro-zone from the sovereign crisis. The single currency gained further strength from news from the bond markets where Germany sold all its 12-month bills at a lower yield and higher demand than expected. On the data front Consumer Confidence improved slightly, showing a -20.6 print versus -21.4 expected and -21.3 previous. Other data from France showed a drop in the French Business Confidence Indicator to 91 from 96 expected whilst the French Production Outlook Indicator fell to -37 versus -36 expected.

GBP

The pound strengthened as it tracked the euro higher following reasonably positive feedback from debt talks in Athens with the eurodollar rallying to above 1.3000. News of the success of a German auction of 12-month bills also helped stimulate risk appetite and a rise in sterling by association. European Banking stocks with several U.K names amongst them rallied strongly also helping to support sterling. Wednesday will be a key day as 4th quarter GDP will be released and the minutes from the last BOE meeting. The GDP figure will be particularly important as it is widely speculated that the BOE is considering introducing another tranche of quantitative easing in order to stimulate the economy and if the GDP is lower than expected it could increase expectations of further QE. Likewise if the minutes are unduly dovish that will also reinforce the chances of more stimulus.  

JPY

The yen traded mixed following an ambiguous result from the Greek debt talks which were being hailed by some analysts as a success whilst in Japan they were seen as having 'broken down'. It remains to be seen whether the agreements made will be sufficient to back a request for a second bailout from the E.U, who's finance minister's met in Brussels on Monday with a view to making a decision on that very issue. Japanese stocks, which had been rising stalled resulting in yen strength as risk aversion rose although the euro continued to rally against the yen despite the renewal of euro-centric concerns. Against anglo-saxon currencies the yen rose, however, particularly versus the weakened dollar. The recent run of bad data and fears of further intervention after verbal queues from the Japanese Finance Minister had successfully halted the last leg of the yen's rise, but it remains to be seen whether the ECB's loose monetary policies and the new austerity in Europe will be enough to calm the markets for long.