Key Eurozone Meeting Amid Double Dip Fears

Tom Tong29/Nov/2011Currency Updates

USD

Yesterday credit ratings agency Fitch threatened to cut the United States AAA level for long-term debt should they not devise a “credible plan” by 2013. The congressional super-committee failed last week to agree on at least $1.2 trillion in spending cuts and the result is that the outlook for the US has been revised from stable to a negative outlook. This disagreement to solve the worsening debt crisis is the last chance before next year’s presidential elections take place.  Should no plan be in place, this will only exacerbate the problem.

In the currency market, the dollar continues to be strongly bid as risk adverse investors seek to place their assets outside of the Euro.

A quiet day for data in the US today with only the Home Price Index and Consumer Confidence levels being released.

GBP

Fears of the Eurozone and the U.K. re-entering recession have forced the OECD and the British Chamber of Commerce to lower their growth forecasts.  The Pound weakened after negative U.K. housing data and poor retail sales last month, resulting in speculators having an equally sceptical view.

Mervyn King told a committee of MPs that growth would be “flat or close to zero” over the next six months if changes to government policy were not made, OECD urged for further round of QE. It seems George Osborn foresaw these opinions, announcing a £30bn infrastructure plan yesterday. “We are finding the resources in difficult times to build the railways, to build the roads. Britain’s got to get away from the quick-fix debt solutions that got us into this mess.”

Today’s pre-budget statement will outline the plans and we will see if this pledge is in line with the planned reduction in public spending, until then we will continue to see the higher yielding peers reaping the rewards.

EUR

Despite Germany’s ‘failed’ bond auction last week, a global risk appetite increase saw the Euro recover slightly from the 2 month sell off amid speculation of policy makers within the Eurozone heightening their efforts to dampen the sovereign-debt crisis.

We hope to see more progress made at this week’s EU summit after the lack of progress made in previous meetings, this could however be wishful thinking and appetite has only increased with the possibility of 30% of sovereign bonds being insured – this reduces the pressure slightly on France, Germany and other investors but cannot guarantee Italy will raise their required 8.8bn Euro; it is also not a long term solution.

There is a lot riding on the meeting with fears of the Euro actually unravelling at the highest levels yet. It’s going to be an interesting week.

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Written by Tom Tong

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