Sentiment improved over yesterday, helped by a stronger than anticipated German Ifo survey for December, some upbeat US housing market data and a successful Spanish bond auction. US housing starts and permits surged to a one and a half year high in November, reinforcing the view that the US economy will continue to see moderate growth. Spain, meanwhile, managed to successfully auction over €5billion of short terms paper, raising more than it had initially hoped. This pick up in sentiment has helped the euro versus the dollar, with the single currency trading back above the $1.31 level. It has also been aided by a round of short covering ahead of year end, as well as hopes that a key ECB refinancing operation which gets underway today will ease strains in the market.

The central bank yesterday opened bids for the first of its keenly awaited three year refi operations which should help to ensure that banks have adequate funding. The results are due to be announced today, with significant demand potential triggering further gains in the euro. Some in the market believe that the new funding facility might encourage private banks to buy their government’s debt or hold on to existing sovereign bonds.

While the euro has made up some ground versus the dollar and indeed also versus the yen, it has struggled to make up losses versus sterling. Buoyed by its own gains against the dollar, sterling remains close to eleven month highs versus the euro as it continues to benefit from some safe haven appeal. Yesterday’s better than expected CBI distributive trades report for December also helped. Concerns about the UK economy remain nonetheless, with data released overnight showing that consumer confidence weakened over the past month.