The 17 countries in the eurozone hope that the new rules will reinstate assurance and confidence in their joint currency and encourage investors that all of them will get their debts under control and managed.
Swedish Prime Minister, Fredrik Reinfeldt said “We have a majority of 25 that will now sign up to the fiscal compact.”

The currency union wants to get broad support from the other EU states, although the new rules only apply to the 17 euro states, in hope that the agreement will ultimately be integrated into the main EU treaty.

Britain said in December that it would not sign the new treaty. Prime Minister, David Cameron said of the other countries, “I don’t want to stand in the way of what they think they should do, but this is not an EU treaty because I vetoed that.”

Reinfeldt stated that the Czech Republic didn’t sign because of parliamentary procedural problems.

With the agreement of the new fiscal compact for the single European currency, it is becoming more positive that saving the euro will be a success, as well as growth to create jobs across the 27 EU countries.

Meanwhile in the US there was some good news as they announced that the economy had grown more than expected good news for both the US and the global economy. Should the US economy continue to move from strength to strength we could see not only Dollar strength but also some other currencies such as the Australian and New Zealand dollars strengthen as investors confidence in the global economy grow.

The week ahead has a number of interesting releases but the most important for the pound will be on Thursday it what could potentially be a busy day.

The first release of note is the NIESR GDP estimate which can potentially throw up a few surprises, especially as GDP is seen as a clear indicator of the health of an economy. Currently UK GDP is seen as weak and therefore if this release did show a positive figure you would expect the pound to strengthen as a result. However if the GDP estimate is shown to be negative then you would expect the pound to weaken as a result.

The second release to note is the Bank of England’s interest rate decision which is due at 12:00. The UK is currently experiencing a spate of stagflation which is where inflation and unemployment are both high; this is weighing heavily on the pound. So it is unlikely that the BoE will raise interest rates on Thursday.

However I would still highlight this release as important because if they were to raise the rate then the pound would strengthen massively as a result. This is because high interest rates see investors gain a much greater return and therefore are seen as positive for an economy causing exchange rates to strengthen.

In other currency news:

US Dollar:

The USD initially weakened following concerns of rising oil prices but has now strengthened as recent global concerns have seen a regurgitation of a “flight to safety”.

This is where investors will move their money into those economies which are seen as safer havens in order to protect their positions. There are a number of releases that may be important but the one I would specifically highlight is Friday’s Retail Sales figure at 13:30.

Euro:

The single currency has once again been bailed out following comments from Jean Claude Trichet that interest rates may rise sooner rather than later. Trichet’s comments will be echoed in the market as rates for the Euro will continue to be strong until data can prove that Trichet was in fact being slightly pre-mature.

This looks set to continue until the BoE do raise rates and I am under the opinion that rates will rise around May time. The reason for this is that the revised GDP figure for the pound showed the economy contracted -0.6% in the fourth quarter, this was worse than previously thought and presents the BoE with a very serious problem – do they allow inflation to spiral or do they raise interest rates and risk the economy to enter into a double dipped recession.

When rates do rise the European MPC will have to raise their rates soon after or sterling will gain ground very quickly and we could even see rates as high as the mid 1.20′s. These rates have not been seen since the recession first hit so will come as welcoming news for those looking to trade GBP/EUR although owing to the uncertainty this could be some time away.