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Merkel & Sarkozy tell Greece they’re either in the eurozone or there out!

Sterling has managed to hold firm against the euro this week, trading near seven 1 month highs as the problems in the eurozone dominate the currency markets with regards to direction. Earlier this week we did see the pound go close to the 1.17 handle as the Greeks managed to throw a spanner in the EU works by calling a referendum on whether the people want to accept the tough new sanctions which come with the next tranche of EU/IMF bailout money. Sterling has managed to hold onto most of its strength, trading around the 1.1620 level this morning. The pound is not without its own demons however, as the NIESR hit the wires to warn that Britain faces a near 50% chance of recession if the eurozone crises is resolved successfully, although a 70% chance of recession if the eurozone policymakers just "muddle through". Nothing to worry about there then??? The NIESR also lowered the UK's growth forecast, saying that UK GDP growth is seen at 0.9% in 2011 and 0.8% in 2012.
Data 09.30: Services PMI 51.9 from 52.9.


Well, what we can we say about the Greek stance which has well and truly thrown an already chaotic eurozone scene into further dismay. Their move to call a referendum on whether to take the nasty medicine which comes in the form of tough economic reforms has shocked global financial markets even more than the last few weeks turmoil, but the Greeks bluff has well and truly been called now. German Chancellor Angela Merkel and French President Nicholas Sarkozy have told Greece to 'take it or leave it' on their decision on whether they want to stay in the euro at the upcoming referendum scheduled for the 4th or 5th December. These comments saw risk off sentiment dominate the markets as the euro plunged yet again versus the dollar and to an extent sterling. There have also been shock tactics used on Greece by the EU as they announced they have suspended an overdue tranche of €8bn in international aid to Athens and demanded Greece make a clear decision on whether to leave the eurozone. Can things get any more chaotic? Think we all know the answer to that one! Oh, one more thing, in case anyone forgot, the ECB will today decide whether to alter the interest rate on the Eurozone, with any cut in rates looking to weaken the euro further.
Data: 12.30: ECB Interesat Rate Decision expected unchanged at 1.5%. 12.45: ECB press Conference with a new ECB President taking over form Jean-Claude Trichet.


The dollar made more impressive gains over its under fire euro cousin yesterday as we saw the $1.37 handle broken yet again this week. The ongoing circus that is the eurozone's attempt to resolve the debt crises seems to go from bad to worse with market players looking to get out of euro holdings and take cover in the safety of the dollar. This has also seen the greenback make gains over sterling as we saw cable break though the $1.59 handle in Asian trade overnight. In the Fed's meeting last night, the Federal Reserve sharply downgraded its projections for the US economy, warning that weak growth and high unemployment will be the norm for years. Despite these projections, the Fed's policy making board declined during the two-day meeting that ended Wednesday to take any new action to  boost growth, leaving ultra-low interest rates unchanged. In other words, no more QE. This also helped rally the greenback.
No Major Data Due Today.


• Both the Aussie and kiwi dollars and the South African rand have all dropped in value of late as risk appetite deserts the markets in the wake of the Greek decision to hold a referendum on more new austerity measures. The chances of a disorderly default in Greece are somewhat higher now than this time last week, so the market is rightly concerned about what's happening in Europe.



























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