The EU have agreed that a member country in very serious fiscal difficulties will be able to receive bi-lateral assistance from Eurozone partners as well as draw support from the IMF.  Following weeks of discord, it had become politically very important that the EU show unity on how to deal will fiscally errant members of EMU.  In this sense last night's announcement that there is now mechanism in place that an EMU member country could turn to for funding was an important step in the right direction.  The fact that ECB President Trichet has swallowed his previous concerns about IMF involvement and added his support to the package (and to the positive spin that followed it) is further proof that he is an accomplished politician.  The proof of the pudding is in the eating, however.  Greece still has to sell a significant amount of debt in the open market this spring and the EU will be hoping that Greece, never mind Portugal or Spain, will not have to tap its EMU partners for a loan.  Greek bond spreads have tightened this morning in response to the move, though the move towards the longer end of the curve has been half-hearted with the 10 yr still yielding over 300 bps over bunds.  Similarly while the EUR has performed well this morning, EUR/USD has not been able to reclaim the 1.3400 level.   The Greek debt office will almost certainly have to announce another bond sale in the coming weeks.  Not only will this sale be a crucial test for Greece but it will set the scene as to what happens next in EMU.  A poor response to the sale will raise the likelihood that Greece will be forced to ask for financial assistance and Germany, despite its recent protests, is likely to be the biggest contributor under the new support plan.  Poor results in the next Greek bond sale would also increase the risk of contagion to Portugal and this could intensify the pressures on the new support mechanism, on EMU and on the EUR.  The EUR is thus not out of the woods yet.  

Another hint that a Chinese revaluation is almost inevitability came last night from a PBOC advisor Fan Gang.  He commented that China may allow the yuan to move more freely vs the USD, although an abrupt revaluation would be avoided.  

USD/JPY has failed to hold the 92.70 level this morning.  Yields continue to be the main driver though a weekly close above the 93.30 area would be a positive technical signal.  
EUR/NOK has been squeezed higher on comment s from the Norges Bank's Gjedrem that rates should not be raised to rapidly.  This follows a less hawkish than expected statement following this week's policy meeting.  

UK data today brought weaker than expected final Q4 business investment data (-4.3% q/q) and a -0.3% m/m fall in Feb house prices according to the land registry.   Cable continues to hold above 1.4820.  

US Q4 revised personal consumption data and final Mar University of Michigan confidence data are due this afternoon.  The ECB's Trichet, and the Fed's Bullard and  Tarullo are due to speak.  

Jane Foley
Research Director