Euro weakens as meeting for Greece ends in deadlock

Market sentiment was boosted
yesterday evening as the Euro-zone leaders gathered for the second
time in a week to try and chalk out an agreement with the IMF in
order to unlock bailout funds for Greece. At the European close
yesterday, markets in Germany rose and the French market recovered
somewhat marginally, after they were downgraded by Moody’s in
anticipation of a deal being reached. However, the meeting that
stretched on into the early hours of this morning ended in a
deadlock as the Eurogroup ministers failed to reach a decision and
wrangle out a scheduled disbursement of funds. The outcome of the
Euro leaders failing to do so has weakened the Euro from 1.2825
levels, down to 1.2750.There are reports that the leaders are
considering allowing Athens to buy back up to €40 billion of its
own bonds at a discount, to try and reduce their GDP figures to the
120% level within the next 8 years. This muddled up, indecisive
conclusion has brought back fears into the market that the
Euro-zone crisis is not going away, and just prolonging the
inevitable pain.

Meanwhile, in the US, Federal
Reserve Chairman, Ben Bernanke issued a warning to markets stating
that the US economy faces a substantial threat unless the
government finds a way to avert the fiscal cliff due to kick off in
January, as he admitted the Central Bank lacks the tools to avert
it. The greenback has strengthened largely due to safe-haven
inflows as the Euro-zone crisis lingers on and a series of stronger
than expected housing data releases out of the US, earlier in the
week. Construction of new homes in the US reached a 4-year high in
October. We await employment figures later today from the US.

Martin Weale, of the Bank of
England, issued a statement yesterday saying that inflation will
continue to be much higher than estimated, for the next 2 years.
This has quashed any rumours of quantitative easing for the time
being, as it would further aggravate inflation, which the UK
economy can ill afford. This morning, Sterling has been trading
just above the 1.59 mark. Any sort of clear direction from the
1.5850-1.59 range will come once we get some concrete information
from Europe.