FX Market Overview

After a day in which the European Central Bank cut the Eurozone base rate by 25 basis points and the Bank of England left the UK base rate on hold, the EU summit got down to the nitty-gritty of building a ladder they can climb to carry the Eurozone out of its debt chasm. Ahead of these talks, the Euro weakened and the Pound strengthened, EU leaders said Britain must toe the line and Britain said only if it suits our interests.
Early this morning David Cameron decided that the agreement being proposed to allow more power to be vested in Brussels was not in Britain’s interests because there was no safeguard for Britain’s financial services industry and he vetoed the agreement. That left the 17 euro using states and an undisclosed number of the other 10 members of the European Union to forge ahead with their plans to allow the EU to, amongst other things, check budgets before the member states approved them and to impose sanctions if members do not toe the line. At the time of writing, the markets have not opened in London but I think traders will be rather ambivalent about the news until we know more about how this new agreement and new club formed within a club and around a club is going to function.
Yesterday’s euro weakness was also exacerbated by the ECB’s lack of ambition and markets were disappointed that they failed to make more substantial plans to tackle the debt problems. On the starting day of an EU summit aimed at doing just that, it was felt the ECB had an opportunity to set the ball rolling with a grand gesture of some description; expanded bond buying being the most touted possibility. That didn’t happen so traders sold the shared currency.
Away from the continued wrangling over power in Europe, you may be astounded to hear it but there are other news items. Sadly though, the currency market news is almost entirely driven by the EU debt crisis. Weakness in the Australian and New Zealand Dollars largely stems from nervousness amongst investors derived from the EU problems. The US Dollar is stronger as those investors buy into US treasury certificates and look to sit it out while the EU problems persist.
Outside Europe, today’s news includes input and output prices for British businesses and both the UK and US trade balance figures. Will these have an impact? Probably not because they are overshadowed by the Merk-ozy plans but they may have significance once the EU agreement is hammered out. And they will reach some sort of agreement; it just depends on how they are going to plug the hole that not being able to tax the UK’s financial industries leaves in their budgets.
Other than all this, the weekend beckons; shopping, digging yourself out of snow drifts, repairing the damage from gales, pumping the cellar out after the rain etc etc. I yours isn’t all about that and that you do manage to get some sitting in a chair and relaxing time. You will need it; Chistmas is only two weeks away.