POUND
The Pound lost ground on the Euro this morning but gained on the Dollar after positive comments from Germany regarding the upcoming summit on Thursday and the E.U’s potential to resolve this debt crisis supported the Euro in early trading. The Pound reached a one and a half month high on the Euro yesterday as confidence in the single currency fell to fresh lows as fears over the Euro zone debt crisis deepened. “There are not so many fundamental reasons to buy sterling — it has a low yield, low volatility that enables investors to hold onto short positions and the BoE won`t be raising rates any time soon,” said Peter Kinsella, currency strategist at Commerzbank. “So investors are buying it basically as a reflection that it`s not the euro.” Whilst the Euro corrected some of those losses this morning, the prospect of an uncertain resolution to Euro zone debt is likely to hamper the Euro’s chances of a rally. Some analysts see high levels of debt and data pointing to a weak U.K economy as factors that need to change for the Pound to be well supported. “Sterling is a very cheap currency, but it can`t bounce independently until the UK has weathered the economic and fiscal storms,” said Kit Juckes, currency strategist at Societe Generale.

EURO
The Euro clawed back some of its losses against the Pound and U.S Dollar this morning after Greek Minister Evangelos Venizelos fuelled fresh hope for the debt crisis by suggesting a resolution was “attainable” at the summit of E.U leaders on Thursday. “The Greek finance minister released an interview that suggested an agreement could be reached this week,” said Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London. “Spreads are a bit tighter and there’s a partial retracement” of the euro, he said, because “you’d be caught out badly” if policy makers do reach a credible solution for the debt crisis. The state of the single currency remains in the balance with the prospect of debt contagion spreading to more peripheral countries in the region only too real. Germany remains upbeat about resolving the crisis, expecting a Greece bailout to stem the tide of debt contagion. “We must master this challenge,” Angela Merkel’s chief spokesman, Steffen Seibert said yesterday in Berlin. Germany is “positive that we’ll have a package for Thursday that will secure Greece’s debt sustainability in the long term,” added Finance Ministry spokesman Martin Kotthaus. The Euro was supported against its main counterparts this morning but the prospect of further risk aversion and pressure on the single currency is far from over.

US DOLLAR
The Dollar was held back this morning by the Pound and Euro after previous gains as risk aversion was stemmed by German ministers suggesting the summit should provide a clearer direction on resolution to the Euro zone debt crisis if bailout plans for Greece are concluded successfully. Risk aversion continues to come and go on the back of uncertainty in the single currency, with the Dollar finding and losing support in line with current market sentiment. Another big factor to current Dollar instability are worries about government debt, with $14.3 trillion due for repayment by early next month. Whilst many traders believe the U.S will find a deal to avoid defaulting, the risk is putting pressure on the greenback currently and preventing it from making further inroads in to an ailing Euro. All eyes will be on Spanish and Greek auction for bills later today that could provide support for the Dollar if demand is low. “Any signs of weakness in the auction, particularly for Spain, will likely send peripheral spreads wider and stocks lower, while the EUR and other currencies aside from USD, CHF, and JPY should fall,” analysts at JPMorgan said in a note.