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The omens for the eurozone continues to look bleak – the year has started off badly for Spain as their already strained public finances could turn out to have been in even worse shape than expected.

Of grave concern is the public deficit which is being forecast as exceeding the 2011 forecast of 6.0 percent of GDP as it unveiled spending cuts and tax hikes totalling 15.1 billion euro’s for this year.

Currency Overview 

EUR: With Germany still refusing to write the cheque that would keep the euro intact the job has been left to the European Central Bank.

In 2011 it switched on the printing presses to create hundreds of billions of euros with which to support Italian government bonds and the region's commercial banks. In a single day the ECB dished out half a trillion euros to 500 banks. And the presses are still on standby.

 USD: Together with the Japanese yen the dollar is one of two top-tier havens for nervous investors keen to put their money in a safe place.

As long as the economy and creditworthiness of Euroland remains suspect, that safety feature will remain in demand. In 2011 the dollar advanced by less than a cent against sterling, principally because for the first six months of the year investors were not worried enough. That is unlikely to be the situation in the first half of this year.

 AUD: The "Santa rally" that often takes equity prices higher around Christmas spread to the commodity-oriented currencies this festive season.

All three of the Commonwealth dollars moved ahead at roughly the same pace, buoyed by the same positive sentiment. In the case of the Australian dollar itself, the positive sentiment was helped by two indicators that pointed to further economic expansion.

 NZD: The Kiwi kept close company with the Aussie dollar during the festive fortnight, taking advantage of a burst of year-end optimism.

NZ economic statistics were few and far between and were not entirely positive. Business confidence softened in December and the economy grew by just 1.9% in the year to September, less than the 2.2% that investors had been anticipating.

 CAD: Torn between following the US dollar and running off with its antipodean cousins the Loonie decided to opt for a two and a half cent rally in company with the AUD and NZD.

The economic fundamentals had little to do with its advance; investors were smitten with festive optimism and they were of a mind to buy themselves something a little less boring for Christmas than the safe-haven Greenback and yen.

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