Above-forecast Chinese growth data has lifted sentiment and risk taking in currency markets. Analysts had feared the Chinese economy was in danger of slowing sharply at the end of 2011 and in the early part of this year, thus weighing on global growth. However, Q4 GDP has beaten forecasts. The news has benefited the euro, helping the single currency stay above water although it still remains in serious danger of further declines. With one eye on Greece’s stop-start negotiations with private investors over accepting voluntary losses, traders will focus on the bond auction in Spain as a measure of confidence. Reduced demand will be another blow for Madrid given that it needs to finance a significant amount of debt in 2012. Sterling is in danger of falling below last week’s 17-month low against the US dollar should a drop in annual UK consumer price inflation data prompt traders to begin pricing in another round of quantitative easing.

Sterling

UK inflation data will come under scrutiny as investors gauge whether or not price pressures are easing enough for the Bank of England to restart its printing press. The Bank of England has long maintained that inflation will normalise quickly over the course of 2012 back towards its two per cent target. Should data fall in-line with median forecasts, policymakers will be given more room to steer monetary policy in the direction of growth risks facing the UK economy.

US dollar

US markets were closed for a public holiday leaving the US dollar to trade in-step with broader market sentiment. The reduced liquidity held the greenback in relatively familiar ranges against most major currencies although the dollar did suffer losses overnight.

Euro

Euro traders paused for thought which came as a surprise considering the mass downgrade of several eurozone countries delivered by Standard & Poor’s. The single currency held above its September 2010 low against the US dollar and even managed to post notable gains thanks to encouraging Chinese growth data which has helped lift sentiment across financial markets. Nonetheless, the stability of the shared currency is still very much in danger of collapse after S&P also lowered its investment grade for the European Financial Stability Facility, Europe’s bailout fund. The downgrade of the fund, which is backed by eurozone governments, could raise its borrowing costs which would then negatively impact troubled nations such as Greece.

Japanese yen

The yen weakened against the majority of its rivals after a number of above-forecast economic reports from China gave equity markets and investor-confidence a major boost.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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