The Euro weakened versus the dollar overnight, a day after the finance ministers were once again unable to solidify plans to settle Greek debt.  The common currency came under pressure after the European Central Bank was said to oppose restructuring its Greek bonds.  The ECB faces pressure to join private-sector investors in taking losses, but the central bank sees this as potentially damaging to the confidence in the institution.   A successful auction of German 30-year bonds garnered more than the targeted 3 billion euros today, while the German IFO business confidence rose for a third consecutive month to108.3, from 107.2 the previous month. Focus remains squarely on January 30^th , as the EU summit’s ability to come away with something resembling a solution to the deepening debt crisis will be tested. 

The sterling fell overnight as GDP fell 0.2% compared to the expected 0.1%, signaling a real possibility of a second recession in three years.  In addition, the pound remains under pressure on speculation that the Bank of England will increase its asset-buying program.  Earlier this month, the BoE unanimously voted to keep the quantitative easing program unchanged at 275B pounds, although monetary policy makers are not ruling out an increase in the coming months if inflation allows. Indeed, BoE Governor Mervyn King said yesterday that policy makers an increase stimulus again if needed to guard against a “renewed severe downturn.” 

The Japanese yen fell to near its weakest level in two months against the U.S. dollar after Japan reported its first annual trade deficit in 31 years.  Japan’s Ministry of Finance reported that the nation’s exports dropped 8.0% in December from a year earlier.  The figures show the impact of slower global growth and March’s earthquake on the economy.  The declines in shipments from Japan resulted in a 2011 trade deficit of 2.49 trillion yen. 

The Euro advanced against the dollar to the highest levels in more than two weeks, as finalizing terms of the Greece bailout will be a key moving forward this week. The EU finance ministers will meet today, with a larger EU summit on the horizon next week, in what they hope will solidify the degree of private sector involvement in the bailout of Greece. On today’s economic docket, the Euro-Zone January consumer confidence is expected to stay relatively steady, at –21.1.

The sterling stayed relatively unchanged over the weekend, after a week that showed the pound gain just under 2% on the dollar. The U.K. continues to show an elevated risk of surpassing the Bank of England’s target inflation of 2%, as the forecast of no growth over the fourth and first quarters continues to be reported.

The Euro retreated from a two week high against the dollar on decreased demand for higher-yielding assets and as Greek officials and private creditors struggled to reach an agreement on a debt-swap plan.  European officials and Greece’s private bondholders agreed in October to carry out a 50% cut in the face value of the nation’s debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing the country’s borrowing to 120% of gross domestic product by 2020.  The two sides have struggled to reach an accord on the coupon and maturity of the new bonds, raising the danger of default.  An accord is essential to a second financing package for Greece, which faces a 14.5 billion-euro bond payment on March 20.  Still, the common currency is headed for its first weekly gain in seven weeks after France and Spain held successful bond auctions yesterday.

The British pound held a tight range against the U.S. dollar, but gained against the Euro as a report showed U.K. retail sales rose in December.  The Office for National Statistics said sales excluding fuel rose 0.6% from November, when they fell a revised 0.5%.  Meanwhile, the Bank of England will maintain a forecast of no growth over the fourth and first quarters, policy maker Ben Broadbent told Market News International in an interview. 

The Euro jumped across the board as the IMF looks to raise its lending capacity by as much at $500 billion to insulate the global economy against any worsening of Europe’s debt crisis.  Meanwhile, Greece will resume talks today with the Institute of International Finance, which represents private creditors.  The IIF broke off negotiations last week after failing to agree with the government about how much money investors will lose by swapping their bonds.  The Greek government is close to a deal with bondholders that would give them cash and securities with a market value of about 32 cents per euro of debt, according to a committee member of the 32 creditors. 

The British pound gained modestly against the U.S. dollar but fell against the Euro as the nation’s economic docket disappointed.  U.K. unemployment rose to the highest rate in 16 years in the quarter through November, deepening concerns Britain is heading for another recession as turmoil in the euro-zone dampens the global economic outlook.  The unemployment rate rose to 8.4%, the highest since January 1996, up from 8.1% in the previous quarter.  In addition, the number of people claiming jobless benefits rose for a 10^th month to 1.6 million.  In addition to slow growth in the Euro-zone weighing on the British growth, the problems with the economy are being compounded by Prime Minister David Cameron’s budget cuts.  The austerity measures have dragged on consumer confidence and will lead to about 700K jobs cut through early 2017.  

The Euro jumped as lower borrowing costs and strong economic data boosted demand for the common currency.  Spain sold 12-month debt at an average yield of 2.049%, down from 4.05% at an auction last month.  Greece sold 1.625 billion euros of 13-week treasury bills today with a yield of 4.64%, down from 4.68% last month.  Meanwhile, Europe’s rescue fund, the European Financial Stability Facility, which at its rating cut to AA+ from AAA by Standard & Poor’s yesterday got bids for 4.66 billion euros compared with a 1.5 billion euro-sales target.  The economic docket showed that the ZEW Center for European Economic Research index of German economic sentiment posted a record increase in January.  The reading surged to –21.6 from –53.8 in December.  Tomorrow, Greek Prime Minister Lucas Padademos is due to meet with a group representing private Greek bondholders after a five-day break to discuss forgiving at least half of the nation’s debt in the euro-area’s first sovereign restructuring.  Greece’s official creditors begin talks Friday on spending curbs and budget cuts that will determine whether to disburse additional aid. 

The Japanese yen fell across the board, save the U.S. dollar, as successful bond auctions in Europe and better-than-expected Chinese growth numbers weighed on the yen.  However, the Japanese yen remains unchanged versus the greenback as the two continue to ebb and flow with the prevailing risk sentiment. 

The Sterling strengthened against the dollar today after the release of consumer price inflation numbers that validated the Bank of England’s view that the New Year will see a sharp decline in inflation. This drop in CPI from 4.8% in December to 4.2% provided a sense of separation from the euro, which saw France downgraded by Standard and Poor to AA+ on Friday. Tomorrow jobless claims are expected to increase, while the ILO 3-month unemployment rate is expected to remain unchanged at 8.3%.