Germany sanctions Greek bailout in parliament as bad French unemployment figures continue
28/Feb/2012 • Currency Updates•
Sterling dipped against the Dollar on Monday, but held within sight of a 3-1/2 month high as investors anticipated stronger data in the week ahead that could boost expectations the UK economy will dodge a recession this year as recent surveys have been stronger than expected, adding to bets the UK economy will grow in the first quarter of this year and recover from a contraction at the end of 2011, which is likely to dissuade the Bank of England from pumping further cash into the economy through its quantitative easing program, which tends to be negative for the pound.
Germany faced more pressure from the G20 in Mexico over the weekend to increase the size of the permanent 500bn rescue fund, the European Stability Mechanism, with world leaders stating they would not stump up more cash to fight Europe’s debt crisis until the Eurozone members increased their own contributions.
In response Mr. Schaeuble was disgruntled insisting that the rescue efforts where adequate, claiming the reduction of Eurozone bond yields in recent weeks and as a result the Euro gained against most major peers before the European Central Bank allots a second round of unlimited three-year funds tomorrow to help the region’s banks.
The IMF executive board approved the disbursement after a review of Ireland’s economic program supported by a three-year IMF loan of 22.6 billion Euros, of which about 16.1 billion Euros has been provided. However we remain our bearish view in the long term on the Euro as the solution offered by Germany and its allies is that austerity will lead to an internal devaluation i.e deflation, which would enable Greece gradually to regain competitiveness. Yet this proposed solution is unlikely. If austerity succeeds in delivering deflation, then the growth of nominal GDP will be depressed.
On Monday Warren Buffett predicted the US housing market-on which the global economy depends would begin to improve this year, stating “housing is a better investment that stocks”.
Oil snapped a weeklong rally Monday on G-20 fears high energy prices were hurting global economic growth allowing the Dollar to rise as some of the investment money in oil and commodities flowed into currencies. The greenback rebounded from a near three-month low against the Euro and retreated from a nine-month peak versus the yen. However it droped back off in overnight trading as the Dollar fell against the Euro in Hong Kong after the lower house of Germany’s parliament approved Greece’s bailout package, with risk appetite appearing to be unaffected by Standard & Poor’s downgrade of Greek debt.