·         Trichet goes bananas over Greek fiscal responsibility

·         ‘no special treatment’ for indebted countries

·         US retail sales also poor

·         Rumour Angela Merkel resigns so far false.

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The markets saw the full wrath of Jean-Claude Trichet as he beat up on Greek policy makers in his post ECB press conference.

The ECB’s Governor told us that Greece nor any indebted European economy would ‘receive any special treatment’. As a result of this the euro lost ground across the board ploughing close to the 1.13 level against the pound. The cost of insuring Greek debt against default rose to the highest level on record while yields on debt rose to a 12 month high. We are cautious of saying that the long term downtrend in GBP/EUR is over but further euro weakness is very possible. Given sterling’s speed of ascent yesterday I wouldn’t be surprised if we saw a little softening in today’s trade. There was also a late rumour that Angel Merkel, German Chancellor, had resigned. There has been no clarification however.

This rather overshadowed the actual ECB interest rate decision: rates stayed at 1% as we and the market predicted while the language pertaining to an ‘exit strategy’ was also unchanged.

Sterling was also able to gain against the US dollar as its advance retail sales figure for December was a lot worse than expected. Initial Jobless Claims were roughly in line with consensus. GBP/USD is also near the top of a recent trading range and thus short term forward covering 2-4 weeks may be a sensible strategy in this climate.

Data in this market has been volatile and today will be no different; we have EU Trade Balance at 10.00, US Consumer Confidence at 14.55 and US CPI at 13.30.

Have a good weekend.

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