Foreign exchange specialists

ECB divided over debt

The euro has weakened further versus its major counterparts amid signs of division among European governments over how to stem the regions debt crisis. ECB Executive member Stark has today called on governments to take action to solve the sovereign debt crisis. He noted that the ECB is “not in charge of fiscal policy” and that “our mandate is not to make it easier for governments to refinance their debt”. For the euro, focus this week will be on the EU summit and whether any new mechanism to deal the sovereign debt problems is agreed upon.

The US Dollar is trading marginally higher in a relatively quiet start to the week with market participants easing into an end of year trading style. Looking ahead, tomorrows FOMC policy meeting will have investors paying close attention to what the Fed has to say. Any signs of downplaying the need for additional quantitative easing, while at the same time sounding more upbeat on the outlook for the economy, will likely open a fresh round of dollar buying.

Data released in Britain overnight showed that UK home sellers cut asking prices for a second month in December to the lowest level in almost a year and may reduce them by a further 5 percent in 2011. Sterling showed little reaction to the news, though it did ease back slightly versus the dollar and euro. Ahead this week, Consumer Price Index figures are due for release with the BoEclosely watching whether headline prices remain stubbornly high amid the challenging growth outlook.

All in all, a quieter week is expected in the markets.