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Cameron declines to bow to Merkozy threats

Sterling stood firm yesterday in what was a dramatic day in the currency markets which was dominated by the start of the EU summit taking place in Brussels. The BoE kept rates unchanged and the asset purchase facility as expected, but it was Draghi's bombshell of no more bond purchasing which battered the euro, keeping sterling above the 1.17 handle. Now to the EU summit: The French are apparently blaming Cameron for the EU summit talks breaking down. Were they expecting him to sign not only his own but London's death warrant as well? It appears Sarkozy has a bigger date on the horizon than Xmas and it is the pending French election's he is counting number of sleeps for, rather than anything else. If however someone could give him a new easy route out with his electorate and send him another scapegoat we are sure he would be delighted. It won't be easy however, when you are looking around for someone to blame for an unravelling political experiment which is going to have disastrous economic consequences, nice easy scapegoats are difficult to find, especially ones that will just roll over and take it. Where's Jedward when you need them! Scary thing would be no scapegoat so need a major distraction. Having been buoyed from the summer excursion to Libya, some form of French international posturing with several miscreants high up the "possible" list could very much be on the cards.
Data 09.30: PPI m/m 0.3% from -0.8%


The euro did start out the afternoon yesterday with a small rally, as the markets digested a cut of 25 basis points on eurozone interest rates. Now you may think this should have dragged the euro lower, but  the markets had already priced this in. A cut of 50 basis points would have been the catalyst to send the single currency down, but it didn't happen. What was the big bombshell came in the statement by Draghi where he ruled out the bank increasing its SMP bond buys in at attempt to solve the sovereign debt crisis. This sent the euro tumbling across the board. Overnight has not really seen too much movement in currency markets as analysts digest the fallout from the EU not coming to a agreement by the '27 Club' to curb the debt crisis. Apparently Merkel and Sarkozy thought of this wonderful idea of how to bail the single currency out. they came up with an idea to impose a financial transaction tax to pay for the problems of the euro. Brilliant! Especially considering it would be a none eurozone country that pays for about 30% of it – namely the UK. Outstanding – they get to team up as Merkozy and put one over on DC (UK PM). Well, now we will see how the tug of war pans out as the EU summit continues today and well into the weekend.
Data: EU Summit All Day.


A quiet day for the dollar yesterday saw cable trade in a tight range and the greenback make some gains as the euro continued to undo itself and yet again continue to fail on sorting out its debt crisis. Initially there was some gain in risk appetite as markets gave the ECB some slack by cutting its interest rates, it was looking to get a grip on the situation. The dollar fell slightly against the majors, and the hope that the EU will sort out its mess that is the EURO, also lead to lower yielding currencies falling. Then the markets got a grip, realised the eurozone yet again failed to come to a agreement on what exactly needs doing, sending risk appetite to the hills. The dollar took back over a cent versus the single currency and had dropped under the $1.33 handle this morning. All eyes will be on the EU Summit which continues today for any kind of hint that the eurozone crisis will be sorted out.
Data 13.30: Trade Balance -43.5Bn from -43.1Bn.


•    The Australian and New Zealand dollars fell to one-week lows on speculation a European summit will fail to push the region’s debt crisis toward a resolution, damping demand for higher-yielding assets. The so-called Aussie and kiwi headed for weekly declines after European Central Bank President Mario Draghi said he hadn’t signaled stepping up bond purchases to spur growth. European leaders battled into the night at the summit to halt two years of debt-driven turmoil in financial markets and dispel concerns the euro is on the brink of unraveling.


























red = down

blue = up (snap shot)


These rates are for indication purposes only