Ireland bailout speculation continues

Tom Tong17/Nov/2010Currency Updates

GBP

Sterling fell sharply on Tuesday as Bank of England Governor Mervyn King signalled more quantitative easing could be possible, erasing gains made after higher-than-expected inflation data. While King said the concern was that inflation expectations remained well-anchored, he also said the central bank could do further QE if that turned out to be necessary.

British consumer price inflation unexpectedly accelerated in October and continued to stay above 3%, forcing the central bank governor to write his fourth public letter this year to the Chancellor.

Consumer price annual inflation rose to 3.2% in October, figures from the Office for National Statistics showed Tuesday. Economists had forecast the rate to remain at September’s level of 3.1%. The increase was mainly due to higher fuel prices. The annual rate continues to stay above the 2% target.

USD

The dollar continued to fight back on Tuesday, hitting its highest level in almost two months amid growing concerns about Europe’s sovereign debt crisis.

Industrial production in the US unexpectedly came in unchanged in the month of October, according to a report released by the Federal Reserve on Tuesday, with a notable decrease in utilities output offsetting an increase in manufacturing output. The report showed that industrial production was unchanged in October after falling by 0.2 percent in September. Economists had been expecting production to increase by 0.3 percent.

EUR

The European Union on Tuesday confirmed that preparations are underway for a potential rescue package for the debt-stricken Ireland – but Dublin has not yet asked for help, despite increasing external pressures to seek assistance. Addressing the monthly meeting of Eurozone finance ministers or Eurogroup, EU Economic and Monetary Affairs Commissioner Olli Rehn said intensifying talks on Ireland’s debt crisis will “strengthen” plans for a bailout if the country requests. A team consisting of members of the various organisations is on its way to Dublin this morning to thrash out what to do next. Reports this morning suggested UK chancellor George Osborne will agree to the UK putting up billions of pounds as part of any bail-out agreement.

Meanwhile, Austria has reportedly threatened to withhold money for Greece if Athens does not follow through with deep austerity measures. Greece assured it will make hard cuts for 2011. The news out of Europe highlights the structural difficulties that may threaten the viability of the euro as the region’s major currency.

Elsewhere

Inflation in Eurozone accelerated to the highest level in nearly two years in October, driven by a sharp increase in energy prices. Inflation rose to 1.9% in October from 1.8% in September, the revised report released by Eurostat showed on Tuesday. The rate was in line with economists forecast and was unrevised from the flash estimate.

A leading indicator of the Australian economy continued to slow down in September, suggesting the pace of economic growth is set to ease.

The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, grew 4.6% on an annualized basis in September. That was well above the long term trend growth of 3.1%, but slower than the 5.8% increase in August and the peak 10.3% growth seen earlier in March.

Print

Written by Tom Tong

Vestibulum id ligula porta felis euismod semper. Donec ullamcorper nulla non metus auctor fringilla. Cras justo odio, dapibus ac facilisis in, egestas eget quam. Morbi leo risus, porta ac consectetur ac, vestibulum at eros. Donec ullamcorper nulla non metus auctor fringilla.