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GBP/EUR targets at 1.35 before Greece Talks

The pound advanced toward its strongest level against the euro in seven years as data showed U.K. retail sales and manufacturing output picked up, adding to speculation the Bank of England will raise interest rates this year. Sterling was also supported versus the shared currency as Europe’s finance ministers prepared for a meeting today where they’ll discuss the crisis over Greece’s debt. The British currency edged higher against the dollar, with GBP/USD up 0.08% to 1.5228. Like-for-like retail sales rose 0.2 percent in January after falling 0.4 percent the previous month, according to the British Retail Consortium and KPMG.  The Office for National Statistics said U.K. manufacturing production rose 0.1% in December, compared to expectations for a 0.1% downtick. November’s figure was revised to a 0.8% increase from a previously estimated 0.7% rise. On an annualized basis, manufacturing production rose at rate of 2.4% in December, above expectations for a gain of 2.0%, after rising at a rate of 3.0% in the previous month. The report also showed that industrial production fell by 0.2% in December, compared to expectations for a 0.1% gain, after declining 0.1% in November. Economists say the bias is toward going short the euro versus the pound, the data came out yesterday remained constructive. Markets expect more negative headline this week regarding Greece’s debt negotiation.

The euro has been under pressure since Greek Prime Minister Alexis Tsipras said over the weekend that he will deliver on pre-election pledges to roll back austerity measures and rejected an international bailout extension. Tsipras said he is seeking a new agreement to cover Greece’s funding needs until June. Today, Greek Foreign Minister Nikos Kotzias will hold talks with his Russian counterpart Sergei Lavrov in Moscow amid speculation that Athens might seek financing help outside the euro zone if negotiations with its European partners fail. Greece’s foreign ministry said Kotzias had been invited to Moscow by Lavrov. Athens is trying to reach a deal with its euro zone partners on transitional funding until June before a new debt agreement can be agreed.  EUR/USD erased earlier losses and added 0.14% to 1.1310, supported by rumors the European Commission could propose a six-month extension to Greece’s bailout program, which is due to end on February 28. Yesterday official data showed that French industrial production rose 1.5% in December, beating expectations for a 0.4% gain. November’s figure was revised to a 0.2% slip from a previously estimated 0.3% fall

Overnight, the dollar held gains against the other major currencies yesterday, as concerns over a potential Greek exit from the euro zone continued to dominate market sentiment.  The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was quoted at 94.82, down 0.04%. U.S. Treasury yields, whose rise has been a key argument for the dollar’s strength since the middle of last year, have jumped 20 basis points since early on Friday, after the release of a strong U.S. non-farm payrolls report. That move has supported the greenback overall, especially versus the Japanese currency, though some analysts say the dollar may be hard-pressed to surge again in the absence of a major market driver.

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