Last night’s injection of risk appetite by the Fed has helped the euro to post new highs for January 2012 against the US dollar, as Greek debt talks resume and Chancellor Merkel starts making some very pleasing noises (to the market, at least) about the way out of this dreadful crisis.
Last night’s Fed conference, where Ben Bernanke suggested that rates were likely to remain ultra-low until 2014, caused a bout of dollar selling that lifted most other assets across the board. The gains continued into today’s session, and news that Greek debt talks are to resume provided new hope that Athens and its myriad creditors may yet hammer out a reasonable solution to the nation’s crisis. Meanwhile, in Berlin, a strange softening came over Germany’s so-far intractable chancellor, as Ms Merkel said that austerity was not the only way out of the crisis, and that Berlin was ready to be more flexible over the use of EU structural funds.
Markets might have interpreted these comments as a hint that the ECB might be allowed to be more aggressive in its purchases of sovereign debt, even if that is not quite what Ms Merkel meant. Nonetheless, today has seen a resurgence of strength for this rally, and while it has some way to go to break the late-2011 downtrend, the euro has certainly got 2012 off to a fine start.