Currency exchange markets are in a very similar position this morning to where we left them before the weekend; The Pound to Euro exchange rate is 1.208 and the Pound to US Dollar exchange rate is 1.544. The Pound is holding strong against the Euro ahead of fiscal policy talks today between French President Nicolas Sarkozy and German Chancellor Angela Merkel. The US Dollar benefitted last week from safe haven flows away from the Eurozone debt crisis and strong domestic economic data in the form of Nonfarm Payrolls increasing by 200K – which in turn caused Unemployment to fall from 8.7% to 8.5%.
Merkel and Sarkozy (dubbed ‘Merkozy’) are set to hold talks this morning to discuss the new fiscal compact that aims to fight Eurozone debt and pull the 17-nation bloc out of contraction; the first crisis talk of 2012 will set off where the influential leaders left off on December 2nd (the 8th set of talks in 2011). As the pair have discussed the matter in detail numerous times in the last 12 months investors will be cautious in reacting to their proposed solutions. However if clear guidelines are given towards financial parity, or if a fundamental change is outlined, markets could move back in the Euro’s favour and help it regain some of December’s substantial losses.
Strong data for German Current Account N.S.A in November could help persuade investors that the Eurozone is on a path to recovery. The German Current Account figures detail a €4.3 billion increase from October to December leaving capital flow into Germany at a positive €14.3 billion. German Trade Balance also increased from €12.5 billion in October to €15.1 billion in November; this €2.6 billion shows that Europe’s largest economy is still expanding despite the surrounding crisis. In a strange twist of fate the weakening Euro could actually benefit the German economy in the short-term, as profitable currency exchange rates could be inducing heavier investment from abroad, causing German exports to increase.
As we go through the day look out for economic releases in Germany for Industrial Production, Canada for Consumer Price Index, and USA for Consumer Credit Change. Keeping in line with the contemporary climate of economic crisis; the Franco-German ‘Merkozy’ talks will steal the headlines and dictate which way the markets move.
EU 07:00 – German Current Account N.S.A (November)
EU 07:00 – German Trade Balance (November)
EU 09:30 – Sentix Investor Confidence (November)
CA 12:00 – Canadian Consumer Price Index (December)
US 20:00 – Consumer Credit Change (November)
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