In the previous European trading session, the Euro lost to the Great British pound as the Euro Zone continues to be bombarded with worries over Greece and the US fiscal cliff. But in today’s European session, the single currency is seen to take away gains from the Sterling on optimism that a Greek-aid decision would reached, and on easing fears about the fiscal cliff.
Last week, the European officials met to talk about granting Greece financial assistance but no concrete decision was reached rather, they gave Greece an extension to meet its austerity targets. This week, the finance ministers are to resume their meeting and are likely to bridge their differences so as to come up with a Greek-aid decision, despite emerging conflicts from the Eurogroup and the International Monetary Fund as to the target period for Greece to reduce its deficit. IMF Managing Director Christine Lagarde believes that 2020 is the appropriate target for Greece to trim its deficit, saying that for Greece’s program to be sustainable, it should be rooted in reality and not in wishful thinking, while Eurogroup Chief Jean-Claude Juncker deems 2022 as a more appropriate target. Despite their clash of view, a decision is expected to be reached this week, supporting demand for the single currency. Also seen to buoy the Euro are talks that the Republicans and the Democrats are willing to conciliate on the fiscal cliff issue so as to prevent the imposition of tax increases and spending cuts. With optimism that the US government would work together to avoid the fiscal cliff, risk sentiment is likely to improve.
Meanwhile, the Sterling is seen to decline on expectations of another round of QE by the Bank of England because of fears that recovery from the double-dip recession could not be sustained. BOE official David Miles seems to uphold this view as he said in a television interview that the central bank could do more if the economic conditions so warrant. Considering all these factors, a buy bias for the EUR/GBP pair is suggested in today’s European trades.
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