Markets keep tumbling while troubled European countries wait for an agreement to be executed

Tom Tong26/Jul/2012Currency Updates

EUR

The euro rose against its major peers after five days of losses due to the successful sell of Spanish and Italian bonds. The yield on Spain’s 10-year bond dropped 0.25%, to 7.38 percent, and similar-maturity Italian yields declined 15 basis points to 6.45 percent. The execution of the agreed plans by European leaders last month are being delayed which is worrying the markets, showing high volatility and sending down the main European stock markets. The plan would allow the future European bailout fund, the European Stability Money, to bail out troubled banks directly. If the deal goes ahead, the Spanish government would avoid an international rescue and have survived with only a ‘bail out lite’.

Greece’s Prime Minister, Antonis Samaras, will meet with representatives of the European Commission, the European Central Bank and the International Monetary Fund tomorrow as Greece may fail commitments and run out of money again. The Import price index released today has been much worse than expected, falling to 1.3 (YoY) and -1.5 (MoM). The ECB President, Mario Draghi will give a press conference today which will be keenly monitored for insight into future developments.

GBP

The UK economy shrank the most in three years. The main data coming out of the UK was the GDP figures which showed a fall of the GBP of 0,7% between April and June, much bigger than expected. This release caused the pound to fall against its major peers, showing the biggest daily decline in the past six months. This larger than expected contraction has fuelled speculation that the Bank of England will increase asset purchases to reignite growth at its July meeting but also has put more pressure on the uk government to take measures to boost growth.

USD

The dollar lost against the euro after the demand for new U.S. homes fell in June from a two-year high indicating the housing recovery will be uneven. Purchases decreased to a 350,000 annual rate, the weakest since January, the data showed. Main data from the US today will be the Durable Goods figures, which is anticipated to be weaker than expected as companies are holding back on capital spending as the global outlook darkens.

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Written by Tom Tong

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