In Brief
Reports that Portugal could seek an €80bn EU bailout have put pressure on the euro – boosting sterling.
Lib Dem comments that publicly-funded bankers should not receive bonuses could spook the markets
In the US non-farm payroll figures on Friday were below expectations – rising only 103k against hopes of 159k.
In Depth
EUR
Good morning! Last week sterling hit a high of 1.2066 against the euro on fears that EU politicians might impose bondholder haircuts on investors in European banks. People looking to transfer money abroad can be hopeful that this trend continues this week: this morning rumours are rife that Portugal will request an ECB-IMF bailout package inside weeks.
Portugal could request up to €80 billion from the ECB (European Central Bank) according to reports printed in a German magazine over the weekend. The Portuguese President Anibal Cavaco Silva has denied these reports – but insurance rates for Portuguese bonds (the rate the Portuguese government pay to assure investors) have nonetheless risen to all-time highs of 7.0%.
GBP
Sterling though nonetheless faces some difficult tests this week. This morning for instance Lib Dem Treasury Spokesman Lord Oakeshott has stated that RBS (Royal Bank of Scotland) bosses should not receive bonuses while RBS remains publicly funded. This breaks with comments from Prime Minister David Cameron last week that banks should not be ‘micro-managed’, and could lower market confidence in sterling. In fact sterling has dropped 30 pips against the US dollar and euro this morning – arguably because of these reports.
In addition the markets are anxious concerning the forthcoming interest rate decision from the Bank of England on Thursday. British inflation is soaring at 3.3% right now – far higher than the 2.0% government target. But the fragile state of the economy means Bank of England Governor Mervyn King may be loath to increase interest rates, in case this dampens the recovery.
USD
In the US finally non-farm payroll figures released on Friday fell below expectations. 103k new non-farm jobs were created in December – against expectations they would increase 159k. This has dampened confidence in the US recovery, and the GBPUSD exchange rate rose on the back of this.
Upcoming
The main UK economic release this week will be UK interest rate decision on Thursday. In addition the latest interest rate decision from ECB Chairman Jean-Claude Trichet is also on Thursday.
by Peter Lavelle with specialist currency dealer Pure FX.
