Market Review - 26/01/2012 22:25 All times in GMT

Euro retreats after rise to fresh one-month high on Greek deal hopes

The euro extended Wednesday's rise on Thursday as hopes of a Greek debt deal buoyed risk appetite but only to surrender its gains as the ECB was unlikely to accept losses on its Greek debt.

Earlier in Asia, the single currency orbited around 1.3100 as trading in all major currencies was relatively subdued after previous day's dollar's broad-based selloff on Fed's dovish post-FOMC statements gains. Despite choppy movements in European morning, euro later strengthened to 1.3175 following reports from the Greek newspaper Ethnos that private sector creditors will likely agree a lower coupon on new Greek bonds, spurring risk appetite. Strong results from an Italian bond auction, rallies in European bourses, and confirmation from Olli Rehn that a deal is close helped propel euro to its session high of 1.3184 in New York. However, the pair fell to 1.3096 after Eurogroup President Jean-Claude Juncker said the ECB would only accept small, if any, losses on its Greek debt holdings.

Italian 10-year government bond yields and the cost of insuring against a default fell due to solid demand for short-term debt at today's auction as Italy sold the top planned amount of 5 billion euros of zero-coupon and inflation-linked bonds.

The British pound traded very narrowly during Asian session but quickly climbed above Wednesday's high in Europe in tandem with euro, cable later rose to session high of 1.5735 in New York afternoon due to dollar's broad-based weakness. However, cable pared most of these gains and settled the day around 1.5685. U.K. CBI distribution trade in January fell sharply to -22 from 9, much worse than forecast of -6.

Versus the Japanese yen, the greenback continued yesterday's decline and ratcheted lower from 77.82 to a low of 77.29 in New York before recovering marginally.

On the data front, U.S. durable goods for December were much better-than-expected coming in at 3.0% vs forecast of 2.0%. U.S. initial jobless claims rose to 377K from 352K in the prior week.


Data to be released on Friday:

New Zealand trade balance, imports, exports, Japan CPI, retail sales, Germany import price index, Switzerland KOF indicator, U.S. GDP, PCE, University of Michigan consumer sentiment.