On Friday the Euro strengthened against the US Dollar and the Pound after EU leaders agreed on a financial aid package for Greece. The deal includes funds from the International Monetary Fund and totals around 22bn Euros which could be made available to Greece should the country have difficulty borrowing money to service its high level of debt.
Against the US Dollar the Euro rose by more than one cent to $1.3422 before falling back slightly to close trading at $1.3414 before the start of the weekend. It rose around two-fifths of a cent against Sterling to close trading at GBP 0.9003.
On Wednesday the Euro had fallen to a ten month low against the US Dollar amid fears a deal would not be reached after Germany indicated Greece did not need assistance. This followed close on the heels of a credit downgrade for Portugal which further weakened the currency.
The deal may allay fears that the problems which Greece has experienced could spread out to affect other countries in the Euro Zone. Following the announcement that a deal had been reached yields, that is the interest rate investors are paid on loans to the government, on Greek bonds fell slightly, an indication that investors viewed them as slightly less risky. Analysts feel the real test will come when Greece hold its next sale of government bonds which will almost certainly happen in the coming weeks. This will be a crucial test for Greece as well as setting the tone for what is to come in the Euro Zone.
According to Moody's credit rating agency, disagreement among Euro Zone partners could undermine the deal: "The key credit question is whether market confidence will be strengthened by the support package, or whether it will be weakened by the contentious conditions under which this package was agreed."
Further concern that the EU's rescue plan could fail arises from concerns that EU leaders may have underestimated how great the problems facing the Euro Zone are. This particular plan was drawn up in response to the Greek crisis, however there are many other members who are struggling, most notably Ireland, Spain, Portugal and Italy. Greek Prime Minister George Papandreou must now prove that he can keep the nations finances afloat as failure to do so could spark a fresh crisis and trigger the use of the aid package. Looking forward the Euro will remain heavily dependent on smooth market conditions in the short term to immediate future.
Across the water in the US, Friday saw the news that the US GDP was revised downward to an annualized rate of 5.6% for the last quarter of 2009. It was revised down from 5.9% according to figures released by the US Commerce Department.
The main factors which brought about the revision were lower levels of personal and government spending and lower levels of investment. The figure is up significantly on the 2.2% annualized rate of growth seen in the third quarter of 2009, it is also the strongest reported since the third quarter of 2003. The Commerce Department said that the pickup in inflation adjusted growth or 'real GDP' reflected rebounds in business investment in equipment and software as well as net exports.
In Japanese retail sales jumped sharply in February as government stimulus measures encouraged consumers to spend, official figures have shown. Sales rose by 4.2% from a year earlier, much more than analysts had expected. The rise happened despite falling prices in Japan, which usually encourage consumers to spend less and wait until prices fall further. Analysts said the rise was unsustainable given the deflationary pressures in Japan.
"Given the stagnant income situation, this sizeable rise in retail sales is too good to be true," said Seiji Shirashi at HSBC Securities in Tokyo. "Some government stimulus measures will continue until April and others will last until September. After these incentives expire, there should be a big negative rebound in retail sales".
On Friday the Yen fell for the fourth straight day against the Euro, its longest losing streak in five weeks as the global recovery gathers momentum boosting demand for higher yielding assets. The Yen fell to JPY 124.41 against the Euro on Friday.
In the wake of last week's budget announcement in the UK opinion polls are still showing no clear lead for either party. Pundits feel the General Election is unlikely to be called before the Easter break with a date in early May looking more likely. On Friday Sterling held on to its gains from earlier in the week, climbing 0.60% against the US Dollar to close trading at GBP 1.4894.
This week sees a relatively slow start to the week in terms of data but things will pick up on Wednesday and the end of the week will bring the release of the US Non Farm Payrolls and Unemployment reports as well as the Good Friday holiday in most trading centers.