EUR Lifted By Stellar GDP

· JPY NK disarmament reached
· EUR GDP growth stellar ZEW tad light
· UK Inflation markedly lower
· USD Trade Data on tap

The yen firmed in overnight trade as market players remained wary of putting on additional short positions ahead of this week’s GDP numbers and next week BOJ meeting. The single currency also received a boost after the announcement that North Korea agreed to shut down its nuclear facilities in return for energy aid and security guarantees. Last year relations between Pyongyang and Tokyo were sorely inflamed when the latter test fired several missiles in the Sea of Japan and claimed that it detonated nuclear device underground. Tonight’s news removes the one nagging geo-political threat in the region and should be a long term political positive for the yen.

However, the real action tonight was in the European markets where EZ GDP posted stellar results printing at 3.3% versus 3.0% expected significantly better than 2.7% the quarter prior. The positive news on the GDP front offset the slightly lower results from the ZEW survey and helped rally the EURUSD above the 1.3000 level. Although GDP is generally considered to be a backward looking indicator, the surprising strength of the release suggests that economic growth in the EZ remains quite vibrant and its momentum may carry over into this year. Indeed in the past 6 months EZ GDP growth has exceeded US GDP performance expanding at 3.0% vs. 2.75%.

In UK, the inflation data printed much cooler than market expectations with CPI rising only 2.7% vs. 2.9% forecast and far below the critical threshold of 3.1% that would have prompted a warning action from BOE chief Mervyn King to UK parliament. The CPI report quelled any speculation of additional rate hikes from the BOE certainly for this quarter and perhaps as far out as the first half of this year. Meanwhile the antithetical turn of events between EZ and UK pushed the EURGBP to within a few pips of the 6700 level as markets made adjustments to rate expectations between the two currencies.