Euro sell off amid talk of Eurozone break up

Tom Tong12/Sep/2011Currency Updates

GBP

Sterling has hit a three and a half month high against the Euro as the crisis deepens in the Eurozone. It does however remain weak against the dollar due to talks of more quantitative easing for the UK and talk that the UK government’s fiscal plan is too rigid. It is widely believed however that the Bank of England will have to see more of a realised fall in inflation before any further QE. Stop loss orders triggered last week at $1.5920 accelerated the decline of the GBP.

This week we see UK RPI and CPI figures released as well as the unemployment rate all of which are likely to fall in line with expectations and are paling in significance relative to what is happening in the Euro zone due to the Bank of England’s dovish stance.

EUR

The Euro has abruptly shifted into the full glare of the market over the weekend as Germany’s key politicians prepare for a Greek default. The possibility of Greece defaulting and being excluded from the single currency zone has become increasingly real over the weekend as they struggle to meet the required austerity measures for their next round of bailout funding. In a desperate attempt to meet the required capital levels the government slapped an emergency tax on housing in an attempt to raise two billion Euros.

The Eurozone worries have been reflected in equity markets as panicky investors moved out of risky assets overnight and the Nikkei tumbled. The woes in the Eurozone are not limited to Greece as the ratings agency Moody’s threatened to downgrade the credit ratings of French banks due to their exposure to Greek sovereign debt. Their position has been made more precarious by the slump in the Euro Dollar exchange rate which has hampered the banks in paying back dollar denominated loan facilities.

With so much volatility in the week ahead it could be a good time for placing orders in the market to capitalise on expected moves.

USD

In the midst of euro woes the Dollar stands to benefit from safe haven flows as investors look to shed risky assets and shelter in the relative safety of the global reserve currency.

Despite Bernanke and Obama muting potential QE last week the dollar has performed well against both Sterling and the Euro due to its safe haven appeal.

Fed member fisher is speaking looking for further indications of future US policy and hints on the likelihood of QE.

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Written by Tom Tong

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