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Euro Unlikely to Hold out Under Debt Pressure

Sterling has fallen during Asian trade against a stronger U.S. dollar and hovered near seven-week highs against a broadly weak Euro as uncertainty over whether Ireland would require emergency funding hurt the single currency.

The word on the street is that over the past two days talks of a possible bailout were under way and that Ireland, with borrowing costs rising, was unlikely to hold out.

The market price to refinance Irish debt has reached record levels; if this continues then they will certainly be heading for a big fall. Some of the banks in the UK have a good deal of exposure to Irish debt and suffered significant stock market fluctuations last week. Foreign exchange markets have responded very quickly any hint of economic catastrophe.

The dollar extended gains from last week during Asian trade buoyed by a sharp rise in U.S. Treasury yields and a report that a group of prominent Republican-leaning economists, working with Republican lawmakers, was launching a campaign calling on the Federal Reserve drop it quantitative easing plan. Although success isn’t guaranteed the mere whiff of it is enough to strengthen the Dollar at the moment.

A raft of UK economic numbers is due this week along with the minutes from the Bank of England monetary policy meeting for November due out this Wednesday. Analysts will scour the minutes for clues about the likelihood and timing of any further asset purchases.

Recent UK data has surprised to the upside, diminishing prospects of further easing in the near term. Inflation numbers on Tuesday and jobs data on Wednesday will also provide evidence of whether the economy needs a further dose of stimulus or not.