Sterling gains vs euro over continuing EU economy fears

Tom Tong12/Jul/2011Currency Updates

GBP

There was mixed data from the retail sales monitor and RICS housing survey as buyers’ purchasing power remains low due to lack of lending from banks.

Major stock markets had their biggest one day fall since the Japan’s Earthquake in March as the cost to insure defaults hit a record high.

Today investors will be awaiting UK CPI, expected at 4.5% YoY (target 2%).

EUR

Contagion is the main concern in the markets today as Italy is in crisis, looking as though it’s heading in the same direction as Greece, Portugal and Ireland as their bond market hits a 10-year high, as did the cost of insuring the Italian government debt against default.

A Greece default is once again looking more likely as talks with Euro ministers broke down again yesterday without an agreed deal on a second bailout package.

The common currency has hit a record low against the Swiss Franc and a 7-week low against the greenback.

In further news,  European Finance Ministers will be considering suspending credit rating decisions for countries in bailout programmes.

USD

Following last Friday’s non-farm payroll data announcement, the US saw the fewest number of workers in nine months, slowing down hopes of the economy picking up any momentum and damaging Obama’s promise to deliver jobs. As a result of this, sterling rallied strongly against the dollar.

However, a positive from yesterday’s data saw the dollar strengthen against the euro as it fell to a four-month low through a number of figures released from Europe.

A number of key figures will be coming out of the US today with trade data and the Federal Open Market Committee Minutes. We anticipate a lot of volatility from the release of this data and will see the dollar rally across the board.

The trade balance figure is a key indicator of the US economy as it is a measurement of the balance between imports and exports whilst recording the total goods and services sold. If the data shows a demand for US exports, we will see positive growth in the trade balance, therefore strengthening the dollar. However, if the US releases poor trade balance figures we will see the dollar weaken, hitting the economy even harder than last week’s poor non-farm payroll figures.

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Written by Tom Tong

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